12 Life Insurance Hacks You Need to Know | INVESTEDMOM
Financial planning and life insurance are essential to creating financial peace of mind and generational wealth building. A financial plan empowers you to set clear objectives, manage assets effectively, and prepare you and your family for uncertainties and milestones like retirement, education, and major purchases.
On the other hand, life insurance ensures that your loved ones are financially secure in the event of a tragedy and provides them with monetary support during times of loss. Life insurance helps mitigate the burden of debts, funeral costs, and lost income, so your family will instead focus on healing and moving forward.
In this article, we will discuss 12 amazing hacks that will maximize the value and benefits of your insurance, from choosing the best cost-effective option for you to locking in great rates and maximizing your case value.
Understanding Your Needs First
Before starting financial planning, it's essential to determine your personal and financial needs. This decision will serve as the foundation for all your financial decisions and ensure the strategies and tools, like life insurance, align with your life circumstances and goals.
To start, figure out what the purpose of life insurance will be for you. There are many reasons people get life insurance, some of the most common include:
Debt coverage: ensures that outstanding debts, like mortgages, car loans, or personal loans, are settled so they won't burden loved ones
Family protection: a death benefit will enable your family to maintain their standard of living, cover daily expenses, and have funds for future needs in the event of your premature death
Final expenses: an insurance policy that will provide enough money to cover funeral costs, legal fees, and other associated expenses to alleviate the financial strain on your family
Investment purposes: Life insurance policies such as whole or universal life have an investment component that allows you to grow the cash value over time. This money can be used for retirement or even purchasing a home
Business purposes: If your family owns a business, there are life insurance options that will protect your business from the loss of a critical person
Discuss you and your family's goals, which will help guide you to choose the perfect life insurance policy to meet your needs.
Term vs. Permanent Life Insurance
Once you have an idea of what your family needs, it's time to decide the type of life insurance policy you want. There are two main types:
Term Life Insurance provides coverage for a period of 10, 20, or 30 years. Once the term expires, the policy must be renewed or ended. Its primary purpose is to provide financial protection for the beneficiaries if the policyholder dies during the term. If the person outlives the term, there is no payout.
Permanent Life Insurance does not expire and provides lifelong coverage. Several types include whole life insurance, universal life insurance, and variable life insurance. Each has different features. Typically, they will provide a death benefit and the option to use it as an investment opportunity. The cash value will grow over time, and the policyholder can borrow and withdraw from it.
Hack 1: Choose Term Life Insurance to Spend Less Money
Although term life insurance ends, it still provides a fantastic value. If your goal is to protect your family if you die unexpectedly, term life insurance will cover them financially and have less expensive monthly payments.
Hack 2: Leverage Permanent Life Insurance for Potential Cash Value
On the flip side, if you are willing and able to shell out extra money in premium payments, utilize permanent life insurance for its long-term benefits. The cash value will grow through interest, and when you need to, you can borrow against or cash out your policy for a higher value than your investment.
Layering Policies for Flexibility
Did you know you can use a combination of policies to meet your financial goals better? Layering insurance policies is a strategic approach that helps cater to the dynamic nature of your and your family's financial needs over time.
Hack 3: Combine Term and Permanent Life Insurance Policies for Balanced Coverage
Sounds crazy having both, right? But hear me out. Mixing term and permanent policies gives you the best of both worlds. While raising a family and paying off a mortgage, the larger death benefit of a term policy is essential. Still, with an extra permanent policy, you can also start setting aside investment money for future needs. Combining them gives you comprehensive coverage without the high cost of a significant permanent policy alone.
Hack 4: Stagger Multiple Term Policies to Match Different Life Stages
Just like having both types of insurance, having multiple-term policies is also beneficial because different life stages come with varied financial responsibilities. As an example, early adulthood often involves student loans, while middle age brings mortgages and raising children's expenses. By staggering policies, you can match these stages appropriately.
Annual Review and Updates
If you are not reviewing any insurance policy regularly, this is your message to START IMMEDIATELY! Periodically reviewing your life insurance policies is essential to ensure they meet your needs as they evolve over time. Here are two hacks that you can implement during this process.
Hack 5: Adjust Policies Based on Life Changes
Our lives will never be stagnant, so what are some life events that would require you to change your insurance? Marriage, the birth of a child, buying a home, and a change in financial status, such as a significant increase or decrease in income, are all excellent reasons. Increasing your premium payments is never fun, but more financial responsibility requires more coverage.
Hack 6: Reduce Premiums by Improving Health
Check with your insurance company to see what metrics they base their premiums on because improving your health can reduce your premium! If they aren't openly displayed, many insurance providers base their premiums on metrics such as weight, blood pressure, and cholesterol levels. Also, quitting smoking and reducing your participation in risky activities like skydiving, scuba diving, and piloting are helpful as well.
Buying Young to Lock in Rates
Purchasing life insurance earlier in life allows you to secure lower rates and premiums in the long run, which leads us to our next hack.
Hack 7: Secure a Policy While You Are Young
When you are young and healthy, you are at a lower risk for insurers because you have a lower mortality risk. Waiting a few years increases your risk of developing health issues, increasing your premiums. Start today looking into a life insurance company offering the type of insurance and coverage you want, and shop around to find the best rate.
Riders and Additional Benefits
An insurance rider is an amendment in addition to a basic life insurance policy that provides supplementary coverage or features not in the original policy. Riders allow you to customize or enhance your policy to meet your specific needs.
Hack 8: Add Riders to Enhance Your Policy
Two riders, in particular, have a significant impact on your coverage. The disability waiver of premium riders is excellent because it ensures that if you become disabled and cannot work for an extended period, you won't have to pay and be insured.
The accelerated death benefit rider allows you to access a portion of the death benefit. Both riders add a layer of protection to enable you and your family to continue life during unforeseen circumstances.
Use an Independent Agent or Broker
Selecting the right life insurance company is daunting, and checking the nuances for all of them is nearly impossible. That's where insurance agents come in.
Hack 9: Work with an Independent Agent
There's more than one type of insurance agent. Captive agents work for a single insurance company, while independent agents represent many insurance companies and offer you a broader range of options.
Whether you are looking for a term or permanent life insurance policy, an independent broker will provide options that meet your needs, often at better rates since they can shop around.
Group Life Insurance Considerations
Group life insurance is a type of insurance usually provided by insurance or associations to their employees or members as part of your benefits package. Only some employers will have this option, but looking into it will benefit your coverage.
Hack 10: Use Group Life as Supplementary Coverage
Employer-sponsored coverage is no whole life insurance policy. The benefits are still great, such as supplementary insurance to help fill the gap or include a cost-effective add-on to increase your cash value benefit while spending less of your own money.
It is important to note that it's not a great option as your primary insurance because the coverage amount is typically lower, and if you leave your job, you may lose the coverage.
Maximizing the Cash Value Component
If you have a permanent life insurance policy, some strategic planning will help you optimize your coverage and retirement planning.
Hack 11: Learn About Policy Loans, Dividends, and Strategic Withdrawals
Every life insurance policy is different, so take the time to learn about yours. Your policy may allow you to borrow against the cash value with lower interest rates and no credit checks. Just remember it will affect the value of your death benefits. You can also use dividends strategically, like reinvesting in the policy, to reduce premiums and accumulate interest.
Hack 12: Avoid Unnecessary Withdrawals to Allow for Compound Growth
While borrowing from your life insurance is a great option, avoid unnecessary withdrawals as they will impact your cash value, affecting your compound growth over time.
Borrow against life insurance when you need short-term liquidity and can repay the loan quickly, your credit score is low, you want to avoid a credit check, or you desire flexibility in repayment terms. Consider an external loan to preserve your total death benefit, and you can secure favorable interest rates without borrowing against your policy.
Start Taking Advantage of Life Insurance Hacks Today to Better Your Future!
Though purchasing and optimizing your life insurance may seem overwhelming right now, if you incorporate these 12 hacks, you will reap all of the benefits. We discussed a lot of elements throughout this article, so let's recap:
Choose term life insurance to spend less money
Leverage permanent life insurance for potential cash value
Combine term and permanent life insurance policies for balanced coverage
Stagger multiple-term policies to match different life stages
Adjust policies based on life changes
Reduce premiums by improving health
Secure a policy while you are young
Add riders to enhance your policy
Work with an independent agent
Use group life as supplementary coverage
Learn about policy loans, dividends, and strategic withdrawals
Avoid unnecessary withdrawals to allow for compound growth
These hacks will help you pick the best policies at the best prices for you and your family. You can optimize their cash value and the death benefit available to protect your family throughout all the unexpected events that life may throw at you.
If you still have questions or are unsure how to determine your family's financial needs, hiring a financial advisor is an excellent option to help narrow your focus and prepare you to state your needs with an independent insurance agent. Don't be afraid to shop around and find the best option.
If you want to learn more about preparing and investing for your future, check out my new book, Living Unrestricted (available for pre-order), which will provide you with all the information essential to your financial plan.
Meet the Author:
Inge was born and raised in Cape Town, South Africa, and moved to Canada in 2010 looking for a better life. She always had an entrepreneurial spirit and started her first side hustle when she was 9 years old – selling fudge at school during lunch breaks.
It wasn’t until much later that she realized that saving isn’t enough to get ahead. She was always very interested in real estate, but saving up for a down payment was grueling and slow, and the demands of life kept getting in the way.
She started investing in herself and upgrading her skills while learning how to invest. She quickly became debt free and compounded her money at a staggering rate.
It wasn’t until she became a coach that she realized how significant an impact she can make in people’s lives by sharing her journey, learnings, and processes.
So here she is, advocating for everyone who is invested and wants to build their wealth, especially the mommas!