National Insurance Awareness Day: Life Insurance Explained

This National Insurance Awareness Day, learn about your life insurance options and how they can affect your financial situation.

Today is National Insurance Awareness Day, and while a discussion on insurance is not the most interesting of topics, understanding how it works and why it may be necessary is vital to your personal finances.  This is especially true for life insurance.  So, since this is National Insurance Awareness Day, let’s take a moment to review the details of life insurance including the most common policy options, term and whole life, and how each can affect your financial situation.

First, let’s review term life insurance.  Generally speaking, level premium term life insurance provides death benefit coverage for a certain number of years at a set annual price.  Most commonly, policies will have a term of 20 or 30 years.  For instance, if you are a healthy 40-year-old male, you could get a 20-year, $1 million term policy for about $775 a year.  In this scenario, if you would pass away at any point during the 20 years you had coverage, your beneficiaries would receive $1 million.  However, if you live beyond 20 years, you will probably not continue the coverage as the cost increases substantially.  In my opinion, the biggest benefit of term life insurance coverage is that it provides a sizable death benefit for an extremely low cost.  The most common complaint I hear is that if you outlive the term, you get nothing in return.

Whole life insurance, on the other hand, generally provides lifelong coverage.  Since whole life insurance continues throughout your lifetime, in most cases, you will need to continue to make annual premium payments as long as you are living.  In a similar scenario as noted above, if a healthy 40-year-old male wants to get a $1 million whole life insurance policy, it would cost about $6,615 annually.  Whole life insurance is significantly more expensive than term insurance, as the insurance company knows that as long as the owner pays their premium, they will eventually have to pay out the death benefit.  Obviously, the advantage of whole life insurance is that the benefit will be paid to your beneficiaries no matter how long you live.  My biggest concern with whole life insurance is the cost.

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You may have noticed that I have used terms such as “generally” or “most commonly” throughout this article.  That is because both term insurance and to a greater degree, whole life insurance, have complexities that go beyond a basic discussion.  Should you have any questions regarding life insurance, what type of coverage makes the most sense for you, or how we can integrate life insurance policies into your retirement and estate plans, please feel free to contact me at 412-630-6000 or email me at

CFP Board owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® (with plaque design) in the U.S.
John Nichols, CFP®

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