💓 Life Insurance

Understanding Life Insurance

Life insurance pays a benefit to your beneficiaries when you die. That's the simple version. The complicated part is figuring out how much, what type, and from which company. Here are the main categories:

• Term life — coverage for a set period (10, 20, or 30 years). If you die during the term, it pays the death benefit. If the term expires, coverage ends. Term is the most affordable option and is the right choice for most people who need pure income protection.
• Whole life — permanent coverage that lasts your entire life, with a guaranteed death benefit and a cash value component that grows at a fixed rate. Premiums are higher than term but they're locked in and never increase.
• Universal life (UL) — permanent coverage with flexible premiums and a cash value that grows based on current interest rates. Indexed UL ties cash value growth to a market index; variable UL lets you invest in sub-accounts.
• Final expense / burial insurance — small whole life policies ($5,000–$25,000) designed to cover funeral costs, medical bills, and other end-of-life expenses. Simplified underwriting makes them accessible for older applicants.
• Annuities — not technically life insurance, but sold by life insurance companies. Annuities provide guaranteed income in retirement, either immediately or deferred. Often used in tandem with life insurance for estate and retirement planning.

Common Pitfalls and Misconceptions

Life insurance is one of the most misunderstood financial products. Here's where people go wrong:

• Not having any — This is the biggest pitfall. If anyone depends on your income — spouse, children, aging parents, a business partner — they'll face financial hardship if you die without coverage. A 35-year-old can often get $500,000 in term coverage for $25–$40/month.
• Buying too little — A common rule of thumb is 10–12 times your annual income, but the real number depends on your debts, your spouse's income, your kids' ages, and your future obligations. An employer-provided $50,000 policy is a start, but it's rarely enough.
• Buying whole life when you need term — Whole life is significantly more expensive than term. If you need $500,000 of coverage to protect your family while the kids are growing up, term gets you there at a fraction of the cost. Whole life has its uses, but it's not the right tool for pure income replacement.
• Letting cash value life insurance lapse — If you have a universal life policy and stop paying premiums, the policy uses its cash value to cover costs. When the cash value runs out, the policy lapses — and you've lost everything you put in. This happens to more people than the industry likes to admit.
• Not updating beneficiaries — Got divorced? Remarried? Had another child? If your beneficiary designation still lists your ex-spouse, that's who gets the money. Beneficiary designations override your will.
• Relying only on employer coverage — Group life through your employer is convenient, but it typically ends when you leave or lose the job — exactly when you might need it most. Having a personal policy you own ensures continuity.
• Waiting too long — Life insurance premiums are based on your age and health at the time of application. Every year you wait, it costs more. A health event (cancer diagnosis, heart condition, diabetes) can make coverage dramatically more expensive or unavailable.

Life Insurance in South Dakota

South Dakota has specific circumstances that make life insurance decisions unique:

• Farm and ranch succession — Agricultural operations often have millions of dollars in land, equipment, and livestock, but limited liquidity. When a farmer or rancher dies, life insurance provides the cash to pay estate taxes, settle debts, and equalize inheritances among heirs without forcing a land sale. This is the single most common use of life insurance in rural South Dakota.
• Buy-sell agreements for small businesses — If you co-own a business, a buy-sell agreement funded by life insurance ensures that when one partner dies, the surviving partners can buy out the deceased's share without draining the business of cash or taking on debt.
• Young families with growing obligations — South Dakota has a relatively low cost of living, which means life insurance premiums stretch further here. A young couple with a mortgage, kids, and one primary income can get substantial term coverage for very little.
• No state income tax — South Dakota's lack of state income tax means life insurance proceeds, cash value growth, and annuity income are treated purely under federal tax rules, with no state-level complications.
• Dangerous occupations — Agriculture, construction, oil field work, and other physical occupations carry higher mortality risk. Some carriers load premiums heavily for these jobs; others are more competitive. The difference between carriers matters.

Why This Is a Job for an Independent Agent

Life insurance pricing varies more between carriers than almost any other type of insurance. One company might rate a diabetic applicant as standard; another might decline them. One carrier might be the cheapest for a 30-year-old non-smoker; a different one might be cheapest for a 55-year-old with controlled high blood pressure. The only way to find the best rate for your specific situation is to compare across many companies.

A captive agent has one company's underwriting guidelines and one set of rates. An independent agent is appointed with many life carriers and can match your health profile, occupation, and coverage needs to the company that will offer you the best deal.

For farm succession, business planning, and estate strategies, an independent agent can also coordinate life insurance with your overall financial picture — bringing in the right products from the right carriers to accomplish what you're actually trying to do.

Helpful Questions to Ask Your Agent

Life insurance is personal. These questions will help you and your agent figure out what you actually need — not just what someone wants to sell you:

• Based on my debts, income, and family situation, how much coverage do I actually need — not a rule of thumb, but a real number?
• Do I need term or permanent coverage — and can you explain why one makes more sense for my situation?
• Given my health history, which carriers are most likely to give me a competitive rate?
• My employer gives me a group policy — is that enough, and what happens to it if I leave?
• Are my beneficiary designations up to date, and do they still reflect what I actually want?
• For farm families: is there enough life insurance in place to cover estate settlement costs without forcing a land sale?
• If I have an existing cash value policy, is it on track — or is it at risk of running out and lapsing?