Why life insurance is important to you and your loved ones.
In order to answer that question, you need to ask these questions to see if you need life insurance for you and your loved ones.
- Do you have car insurance??
- Do you have insurance on your cell phone??
- Do you have insurance on your home??
If the answer is yes, why not have life insurance on yourself and loved ones? Do material things have more value over yourself and your loved ones? Below the belt? I know, but you needed to hear that, you and eveyone else, better now, then later when it is too late. These are things people never think about when it comes to life insurance and why it is important.
Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.–Ayn Rand
So, you have probably had a financial advisor, friend or employer suggest you get a life insurance policy. And you have considered it, maybe even thought that this is just something else to take from your wallet and decided to put it off, right? However, real life can get in the way and place you in situations that you later regret not taking advantage of the time you were given to do it. Another reason is maybe you just plain forgot to do it. Don’t worry, you aren’t alone, plenty of people have made the same mistake too until it was too late.
For a variety of reasons, people might not care to get life insurance. Maybe they don’t want to think of their mortality or for most people don’t want that extra premium to pay each month that sucks more money from an already strained wallet. If that is the case, you could probably benefit from checking the financial fitness of you and your family to see where you can cut more costs, but that’s another article.
The thing is, if you have a family, it is crucial that they maintain their lives when you pass. At the very least they should be left with the funds to provide you with the proper aftercare. Provide funds to afford paying off your debts or live comfortably until they can adjust their life expenses to afford their new lives without you to contribute to it not only in love and memory but in income that all life demands of us to live in dignity and comfort. A house over our heads and food to nourish and grow.
SO, WHAT IS LIFE INSURANCE AND WHY IS IT IMPORTANT TO ME AND MY FAMILY?
Life insurance is a type of policy that in return for a monthly premium, it will pay out a predetermined sum of money when you die to a beneficiary or beneficiaries of your choosing. In some policies you are offered to use that predetermined sum to afford terminally ill treatment or a fund to live out your remaining days in comfort to do what you always wanted to do.
The great thing about life insurance is that you can buy just enough to pay for funeral costs or purchase a policy that not only pays a death benefit but earns money the longer you have it. Some insurance policies offer slight increase in premiums for a period of the life of the policy to increase the predetermined sum amount to pay out to account for inflation or increased cost of living.
WHAT IF I HAVE A POLICY THROUGH WORK?
If it free or pay a nominal fee, that’s great and in most cases, it is only the amount you earn in one year of work. i.e. $52,000 earned a year is the amount the company will pay with the policy. Consider that more companies are cutting benefits and employee coverages in order to cut costs and companies aren’t obligated to pay out. Through fine legal technicalities if they find there was something unreported or unrelated to the company in his or her death, they may not be obligated to pay.
And is one year’s salary enough to afford the cost of living for your family, to be put on that burden on your spouse, especially for just one year. A year may not be enough and with funeral costs and debts paid off, there isn’t much left on the table to care for your kids and spouse. You really need a separate life insurance policy through a company that has a sole purpose and obligation to provide you and your family a policy in conjunction with or without the policy you have at work to cover more than just your funeral costs to provide your loved one’s financial protection.
WHEN IS THE BEST TIME TO BUY LIFE INSURANCE?
Buying life insurance policy is a personal decision that have various deciding factors and different for everyone. Depending on the milestones like getting married, having kids, no mater what you might be going through in your life, you need something in place that can cover the funeral costs and other various costs like medical, debts or so forth, can save family and friends the stress of having to raise funds while going through the grieving process.
Don’t wait until it is too late or too old to get an affordable policy. The best rule when it comes to considering getting life insurance is to get coverage when you are young. You are in your best health and age to get a low premium to lock in. If you are looking to save in cost in premium each month while getting a quality policy with value on the coverage you want, then getting locked into a life insurance policy at a young age can lock that rate for the life of the policy at an affordable rate.
TYPES OF LIFE INSURANCE POLICIES
There are two main types of life insurance- Term and Whole Life.
Term Life is the most basic you can get. You typically purchase it in terms of one to 30 years and only pays out the policy amount if death occurs during that time or with rare service provision can provide a rider that if given a terminally ill diagnosis can get a portion of your predetermined sum to put towards experimental treatment or bucket list expenses. Depending on the company you go with, the benefit provisions with term policies can vary.
With term policies, you either get level term or decreasing term or increasing term. A level term indicates that the death benefit stays the same throughout the policy. A decreasing term policy means the death benefit drops, typically in one-year increments, over the life of the policy. A decreasing term policy is a favorite for mortgage protection. And increasing term, which basically increases the death benefit each year during the term, but concurrently increases the premium. This is often only requested if income levels increase in the family and want to increase the death benefit by their choice.
Whole Life and Permanent Life
Whole life or permanent insurance is designed to pay a death benefit whenever the policyholder dies. However, what they don’t tell you is you are only offered one method of the predetermined sum. You can either be paid the cash value or the death benefit. Most people want the face value because it is more than the cash value. You can only be paid either one, but not both. And this is of course providing as the policy premiums are paid and current.
There are three major types of whole life or permanent life insurance. Those are traditional life, universal life, and variable universal life, and within each type there are differences and might include fees to be paid prior to the dispersion of the funds for managing the whole or permanent life policy as opposed to if you had a term policy. Whole life insurance is designed as financial planning for those who aren’t concerned with budgets and don’t mind a management fee. We haven’t even paid taxes on the lum sum payout yet. So major factos to consider. I always say the more complicated the policy the more money you will be charged for it. And if not paying a fee in the premium it will more than likely be deducted at the date of the payout when you someone under the policy unfortunately passes on.
FACTORS THAT CONTRIBUTE TO YOUR LIFE INSURANCE PREMIUMS
- Your age
- Tobacco use
- Personal health history
- Prior prescriptions
- Family health history
- Driving or criminal records
- Your job
- Your hobbies
Honesty is the best policy, they will find out anyway
5 ESSENTIAL REASONS YOU NEED LIFE INSURANCE
Life insurance is vital because what’s the alternative, GoFundMe? Your family at the mercy of friends and family’s good will and whatever they can scrounge up to help? A fundraising campaign to maintain their lifestyle, is that what we really want for our family. Alternatively, it prevents them from having to put your family home on the market because they cannot afford the mortgage without you, and I have seen this myself happen to a young couple that thought they had time to get a policy together but never did, they simply had life get in the way and forget. She unfortunately had to put here house in the market and move in with her parents with her kids when her husband was killed in a tragic accident.
Life happens and tragidy can happen with no warning. It may be of no comfort emotionally, but Life insurance takes the stress of worrying about final expenses while they giving them time to grieve for their loss. Or the worry about when they will have to go back to work while they are still grieving. I know, it’s sad but you’re probably asking what would someone have to worry about if a spouse or loved one in the family passes away? If you still have outstanding doubts, here are some practical reasons why life insurance should be looked at as a necessity, not a luxury:
Pay Off Debts: Debts such as a mortgage, credit cards, car loans, and even your funeral expenses may have a dramatic effect on your family, and their lifestyle but these things can be paid off by a life insurance policy. Just because the person on the bill dies, doesn’t mean businesses or utilities will write off what’s owed, they can still persue the next immediate relative or spouse for what’s owed.
Protect Your Kids Future: You can help provide for your children’s future college expenses, purchase a home and even cover their wedding costs if the unforeseen happens.
Peace of Mind: If you want to give not only yourself but your family the peace of mind that there immediate financial future will be protected if something happens to you, then a term life insurance policy is a low cost way to do that. You will rest easy knowing that you do not have to worry about their financial future and continue the lifestyle they are accustomed to. Why put that burden on your spouse with no safety net like a predetermined sum payout as a last act of love, kindness and thoughtfulness as money to help care for them when you are gone.
Funerals Are Costly: Did you know that a basic funeral can cost anywhere between $7,000-$10,000 or more? However, a small life insurance policy could alleviate your family’s worry and ensure that your final expenses are covered. But I would recommend something more substantial then just burial insurance.
Enhance Your Retirement: Permanent life insurance policies can accumulate cash value over the course of the policy that you can borrow from tax-free as long as you pay the insurance company back on a set interest rate. Often these types of policies are used to supplement your retirement when other investments fall short. Permanent life insurance policies may have relatively high fees, make sure to weigh the pros and cons of other investment tools. So far there are more cons then pros with whole or permanent when you have to consider paying interest back for a loan against the policy, that you are paying already paying into with your premiums each month. It isn’t really your money until the insured dies and then you can make a choice to have the face value or the cash value, but not both. In my opinion, life insurance should not supplement as an invesment. If you want to invest for retirement, I would recommend a Roth IRA. It is tax-free and can be paid out without penalty when you reach your qualifying retirement age of 57. At least with a Roth IRA, there is nothing you need to pay back in interest as THIS IS YOUR MONEY, you are simply taxed a percentage of the sum at the end of the year and a small fee paid for a withdrawl if you need the funds.
WHY YOU SHOULD GET LIFE INSURANCE NOW RATHER THAN LATER
The biggest reason you should buy insurance now is that tomorrow is not guaranteed and getting it at a young age can lock you in a low rate as age and health are factors in the premium rate. You are never healthier than at a young age before helath issues potentially develop. Life tomorrow just isn’t guaranteed at any age, and you do not want to leave your family or loved ones scrambling for what to do next. If you need a more pragmatic reason, let me repeat myself. The younger you are when you buy life insurance, the cheaper it will be. That is where young people who think they do not need life insurance are making a mistake.
For example, but a 30-year term policy in 20s will be a much lower premium than buying a 20-year term life insurance policy in your 40s. For most healthy young adults, you can get a term life insurance policy that will take care of your family for a couple of years for what you would spend ongoing out to coffee every month. Starbucks Coffee, $6-$8 dollars a cup, five days a week to be conservative. That’s $120 to $160 dollars a month can easily lock in and afford a term policy of more than $500,000+ in life insurance coverage to help your family or loved ones when you pass away unexpectedly. Of course for the life of the policy, don’t forget to renew the policy before expiration if you still need it and been paying your premiums on time and without default.
IS TERM LIFE INSURANCE BETTER FOR ME?
Many people often wonder which type of policy is best. And for many, the life insurance solution for their needs is term life insurance. Here are some things to consider about term life insurance:
It’s less expensive than other life insurance products.
With the money you save by choosing a term product, you could invest the rest elsewhere or payoff debt.
Term life insurance is good for those on a tight budget. You can buy high levels of coverage for a substantially less amount than with permanent or whole life.
Lastly, it’s important to ask yourself these questions when determining how much life insurance you need:
Look at any current and future savings, investments or other funds that may your family may be able to use, as well as debts that could cause hardship to loved ones.
Add up the immediate expense that you could potentially have like funeral arrangements
Your monthly expenses for your family may incur after your death and the short comings amount that you would normally contribute in ammount.
Find an online life insurance calculator to estimate your future needs and then discuss with a licensed life insurance professional.
All these financial factors can help you decide on the set amount you or your loved one would need and decide on what you can afford. Keep in mind as more money becomes free with lowered debts, and more surplus income you could always add a rider to incrementally increase your potential need in amount of your life insurance coverage. However, if you ever reach the level of financial freedom to easily live of any interest you have in your fianancial accounts, you could always reevaluate if you even still need life insurance if you are financially independent and reached a level of wealth that no longer requires life insurance premiums each month.