We all know that life insurance provides protections for loved ones during life’s unexpected moments. Yet, only 52% of Americans have a life insurance policy in place. And, of both insured and uninsured individuals, 41% report that they don’t have enough coverage. So, what’s the reason behind the lack of coverage, even though many people want coverage? It may be related to financial literacy and lack of sufficient information regarding life insurance and annuity products.
Since April is financial literacy month, we’re taking the opportunity to let more people know about the benefits of financial education and how it can help you get the coverage you need. After all, more financial knowledge can help you understand what you need and how to get there.
Why is Financial Literacy Important?
Without adequate knowledge regarding financial principles and practices, you’ll be faced with a lot of unknowns. The truth is, financial wellbeing and literacy is complex with many intricacies that are unique to certain situations. Fortunately, financial literacy, which is the knowledge and skills necessary to make informed and effective financial decisions, can remove some of these complexities and make finances a little bit easier to understand.
Financial literacy means understanding various financial concepts such as budgeting, saving, investing, debt management, insurance, and retirement planning. As a result, a financially literate person is equipped with the knowledge and tools to manage their finances responsibly, achieve their financial goals, and navigate the complexities of the financial world.
With a baseline financial education, you’ll be empowered to make smart decisions for your personal finances. When it comes to life insurance specifically, financial literacy becomes especially important as it directly impacts the level of protection and financial security you can attain for yourself and your loved ones.
How Life Insurance Fits Into Financial Literacy
With a strong grasp on financial literacy, anyone can make informed decisions about their financial goals, and that includes life insurance. After all, selecting the right life insurance policy takes careful research and consideration. Without a thorough understanding of the details of a whole or term life insurance policy, you may ultimately select a policy that’s outside of your budget or doesn’t align with what you need.
Risk Awareness
With financial literacy comes an understanding of the risks associated with the financial decisions you make, as well as the potential consequences of inadequate coverage. Your financial knowledge can help you identify the potential risks to your financial security, such as premature death, disability, or illness, and recognize the role life insurance can play in mitigating these risks.
Additionally, financial literacy contributes to a deeper understanding of policy terms, conditions, and exclusions. With a strong grasp on financial concepts, you are more likely to read and comprehend policy documents thoroughly, which in turn reduces the risk of misunderstanding or misinterpreting coverage details. This then helps you make more informed decisions about your insurance needs and ensures you have adequate protection for your health and lifestyle.
Long-Term Goals
Understanding basic financial concepts is important for establishing long-term financial goals. This knowledge enables you to accurately assess your insurance needs based on factors such as income, expenses, debts, and future financial obligations.
For instance, you may have a goal of creating a financial safety net to use in case of an emergency. With the right life insurance policy and coverage amount, you can begin paying premiums toward your coverage now to set yourself up for financial success down the line. But, to do so, you need to understand how much money to put toward your policy and what type of policy would provide the benefits that you need.
Optimizing Coverage
One of the key aspects of financial literacy in relation to life insurance is understanding the different types of policies available and how they align with specific financial goals and needs. For instance, term life insurance offers coverage for a specified period, typically providing a death benefit to beneficiaries if the insured passes away during the term.
On the other hand, whole life insurance provides coverage for the insured's entire life and often includes a cash value component that can accumulate over time. Knowing the differences between these policies and which one suits your circumstances is crucial for making informed decisions.
And, financial literacy can empower you to evaluate the benefits of different insurance riders and options, such as long-term care riders or accelerated death benefits, which can provide additional financial protection and flexibility. The point is, financial literacy and education means more knowledge to help you select the right kind of coverage that suits the needs of you and your family.
6 Things You Can Do During Financial Literacy Month
If you’re interested in enhancing your financial literacy to help you better understand life insurance, you’re in luck. Here are a few things you can do during financial literacy month to ensure you’re making smart decisions regarding your life insurance and financial well-being.
1. Create a Budget
If you don’t already have one, a budget is a great place to start when improving your financial literacy. A budget is an essential financial tool to help you establish goals and understand what you’re able to do with your money that stays within your scope while effectively meeting your financial goals and obligations. When it comes to life insurance, budgeting plays a crucial role in determining how much coverage you can afford and how it fits into their overall financial plan.
And, setting a budget encourages responsible money management, which is essential for maintaining life insurance coverage over the long term. Consistently adhering to a budget helps you avoid financial strain or gaps in coverage due to missed premium payments, ensuring that your life insurance policy remains active when you need it most.
2. Understand What Coverage You Need
You’ll quickly realize that life insurance boasts a wide variety of options for coverage and benefits. However, taking a few moments to sit down and determine what you need from a life insurance policy can help you narrow down your options, ultimately making your final decision a bit easier.
For example, if you’re facing chronic health conditions, you may have some concerns over the amount of coverage you need and what you’ll need to gain approval for a policy. However, due to your health, you might be interested in guaranteed issue life insurance, which forgoes the need for a medical exam.
3. Research Your Options
If it isn’t clear by now, financial knowledge helps set you up for success. Along these lines, it’s a good idea to thoroughly research all of your options before settling on a final decision. While this may take some time, the more knowledge you have regarding your options will help you ensure that the policy you ultimately select includes everything that you need from a policy, whether that be additional riders, term life insurance, whole life insurance, or a premium payment that’s within your budget.
On the note of your budget, researching life insurance options enables you to compare premiums and costs from different insurance providers. Getting quotes and evaluating pricing structures helps you identify affordable options that provide adequate coverage without breaking your budget.
Additionally, researching your options allows you to evaluate the features and benefits offered by different policies, including cash value accumulation, flexibility in premium payments, and additional riders or options that enhance coverage, such as disability income riders or accelerated death benefits. Ultimately, time spent researching the options available to you will help you maximize your benefits and make a decision that’s right for your unique needs.
4. Set Long-Term Goals
Before selecting a policy, you need to know what you want, right? Long-term goals provide a roadmap for you to envision the future you want and take actionable steps toward achieving that future. When it comes to life insurance, setting long-term goals helps you identify your insurance needs, determine the appropriate coverage, and integrate it into your broader financial plan.
To set your goals during financial literacy month, it’s a good idea to determine what your needs and wants are. Prioritize your needs, or the things that are non-negotiable for what you need from a life insurance policy. After setting those goals, you can shift to nice-to-have features.
Additionally, setting long-term goals allows you to track your progress over time and make necessary adjustments along the way. By periodically reviewing your goals and financial plan, you can assess whether you’re on track to reach your objectives, identify any obstacles or changes in circumstances, and adapt your strategy as needed.
5. Start Sooner Rather than Later
Perhaps one of the most common mistakes people make in regards to their financial knowledge is putting off their financial education. The sooner you take action to understand your finances, the sooner you can begin working towards your financial goals.
And, many financial products have benefits that only grow overtime. For instance, with life insurance, premium payments tend to be lower for younger people, making life insurance more affordable in the long run. And, if your policy has a cash value component, then the value will have more time to grow. So, when your beneficiaries receive payouts from the death benefit in the event of your death, they will have enough of a financial safety net to use the funds toward end-of-life expenses, college funds, or charitable contributions, as a few examples.
6. Work With an Independent Insurance Agent
Finally, we encourage you to reach out to a life insurance agent during financial literacy month to make the most out of your resources. Life insurance agents are another way to ensure that you're making the best financial decisions for you and your family. These professionals can point you toward additional resources and help you find products that suit your needs, which can help you select a product more quickly and get started on your coverage journey.
If you’re looking for clarification on life insurance policies, or you’re simply in the early stages of determining what kind of coverage you need, then be sure to turn to ELCO Mutual for help. Our independent insurance agents can walk you through our policy options and match you with a life insurance product that suits your needs. To get started, get in contact with an agent today!
