When people talk about Life Insurance it seems like the mood in the room turns gloomy. Life Insurance is not sexy, and most people would rather avoid the subject if possible. I am here to tell you that it’s time to talk about Life Insurance if you haven’t got it secured, and I am going to explain why.
Life Insurance is a key building block in your financial portfolio. Most are aware the need for life insurance but seems not be on the top of the priority list. If you have a family, it’s in their best interest if rises to the top. Most wait till an important life event or even sometimes when it is to late.
The best time to purchase life insurance is when you are young. Even if you are single with no debt, but have plans of having a family, this is still the best time. The younger you are, the cheaper life insurance is, unless you have health problems. It wise to lock in the rate as early as possible, because with time, premiums obviously increase.
When you decide to make the leap and start discussing Life Insurance, there will be 2 types of policies to choose from.
Term Life Insurance
Term life insurance is the most popular today. Term life is pretty straight forward. You have set premium based on the death benefit amount you chose. You can choose a term length of 10-30 years depending on your age. The premiums are guaranteed for the duration of the term period that you chose. At the end of the guaranteed period you will have some choices.
- You can continue your policy but understand premiums will increase and some cases drastically
- You can convert your policy to a permanent policy without any health questions being asked. Some companies don’t offer this feature so be sure to check with your agent before purchasing
- You can buy a new term policy with a new guaranteed period. Of course, this all depends on if you are still in good health.
Permanent Life Insurance
Permanent Life is going to cover you for your lifetime (age 121). These types of polices will build up cash value and most, not all, come with guaranteed premiums. Of course, if you make withdrawals or loans of the cash value build up this will affect the premium. Permanent policies are more expensive that a term, simply because you will have the coverage longer. There are 2 types of permanent policies:
- Universal Life
- Whole Life
While both these are permanent policies the difference between them is great. They both are good products, but you will want to find an experienced agent that can explain the ins and outs of each policy.
Reasons to Buy Life Insurance
The easiest answer to if you need life insurance is to ask yourself, if I die will any of my loved ones be affected financially. We know emotional they will be, but we are talking financially. Below are the 3 top reasons to purchase life insurance:
- Debt- You don’t want to leave a burden on your family because of debt you have accrued.
- Children- If you have children then life insurance is a must, especially if you are a financial provider. Even if you stay at home parent, what your daily duties would have to be replaced. com has stay at moms/dads, if you had to pay someone else to do their job, worth $75K-$147K depending on where you live.
- Own a Business- If you own a business then you will want to investigate life insurance. Life insurance can be a good strategy to have in the event of an untimely death. It could pay of debt or provide an income to your family. Life insurance could also be great succession plan if you were to pass unexpectedly.
How do I know how much life insurance to buy?
This might be an easier question to answer than most people think. The easiest way to calculate what you need is:
John makes $100K a year, has 2 children under the age of 5m and is sole income producer. John wants to provide for his family if he were to pass away unexpectedly. I will estimate that John is in a 30% tax bracket, so his take home pay is $70K/annual. John would need a minimum of 7-10 ($700K-1million) times his gross salary ($100K) for his family to continue the lifestyle they are accustomed to. If he has debt, then the amount would be higher.
Make sure you consult an experienced agent before making any life changing decisions.
Who should I buy from?
Life Insurance can be a complicated process if you don’t have the right help. We recommend always using an experienced agent when purchasing life insurance. It would also benefit you more to go with an independent agent/agency, rather than a captive agent (Primamerica, State Farm, Nationwide, Woodmen of the World, etc.). Captive agents are stuck using their respective companies’ products only. An independent agent will have multiple companies to choose from with access to tons of products. Using an independent agent assures you will get the best possible policy with the best rate. Always read the fine print on any policy and ask your agent tons of questions.