I get A LOT of questions about life insurance. Most of the time the questions are "How do I get it?" and "Do I really need it?" More times than not, the first question is asked more frequently. Most people know that they need life insurance but are not sure how to get a policy or know what kind of life insurance they need. There are all types of life insurance. Many people see the ads on tv (usually about final expenses or no medical exams required, etc.) There can be a lot of confusion when it comes time to seek out life insurance because of the enormity of options. Let us try and understand WHY you need life insurance and what kind you really need.
"What is life insurance and why do I need it?"
Life insurance in basic terms is insurance on the life of someone when they pass away. Whether it be a child, grandchild, "bread-winner", or spouse it is insurance to protect or provide for those who are left behind in the wake of a death. Life insurance usually only pays if the person who is insured either passes away or is diagnosed with a terminal illness. I know the thought of someone not being there is hard, but what is even harder is not being able to survive financially because there was no life insurance in place to replace the lost income. Life insurance is there to make sure that the only thing that you have to think about once someone passes is the joy and memories you had and not how am I going to pay the mortgage, college for the kids, funeral costs or daily expenses. Life insurance is important and a necessary item. Most of the time we know we need it--we just do not want to jump into the weeds and figure out how much and what kind we need. This is where an advisor comes in. An advisor, like myself, is here to help you figure out what your life insurance needs are and to think about those tough questions of "what if..." or "how will I/we ...." by helping you come up with a game plan to answer those questions.
How much life insurance do I need?
Here are some questions to ask yourself:
- How much of the family income do I provide?
- If I were to die prematurely, how would my survivors get by?
- Does anyone else depend on me financially (parents, grandparent, siblings)
- Do I need to set aside money for my children's college education?
- How will my family pay for my funeral?
- How will my family pay the mortgage?
- Any charities I would like to leave money to after my death?
The answers to these basic questions and life expectancy help determine how much life insurance you need to protect your family.
"What kinds of Life insurance is out there?"
There are so many kinds of life insurance out there that it can be confusing on what you really need. If I were in this for sales only, I would tell you that you need it all and to buy it all, but that is not why I do what I do. I am here to help you make the most of your resources and make sure that if something tragically happens you are covered financially. When speaking with individuals about life insurance I first want to find out what they think they really need life insurance for. It may seem like a weird question, but I am trying to find out what their concept of life insurance is so that I can help educate them and help them understand what the purpose of life insurance is. There are basically two types of life insurance: Term and Permanent. Term provides life insurance for a limited period. It is for a specific term, several years, or until the insured reaches a specific age. The cost of the policy and the death benefit stay the same throughout the policy term. If the insured dies during that term period, the beneficiary receives the death benefit. However, if the insured survives the term period, the policy simply ends. This is usually the type of insurance best bought when you are younger and have outstanding bills (i.e. mortgage, college expense, etc.). It is usually called the "working years" life insurance because you can purchase a lot of coverage for not a lot of money. Term insurance is the least expensive of the available options. When I first started out there were only really 3 term periods available with all life companies: 10, 20, and 30-year term. Now, several companies do a 40- year term. The fact is that the younger you are the more term length you need. Do the math with me, if you take out a 40-year term at age 25, it gives you coverage until age 65. Then what? Unfortunately, some people get caught in that trap-the term policy expires and they have not done anything to prepare for life after the term period is over. When that period is up the premiums become very expensive and most cannot continue to pay because rates are determined by your age and health at that time (age 65 in this example). It is important to make sure that you have some term life insurance but not put every egg in one basket.
This leads to the other type of life insurance, permanent. Permanent life insurance remains in force for the full life of the insured as long as the premiums are paid. They do not run out or expire like term insurance. Typically, these policies have cash value or account value. Permanent life insurance is usually more expensive because it builds cash value over time. The most prominent type of permanent life insurance is called "Whole life" (final expense, burial, etc.) It is usually purchased in smaller increments than term because the coverage is over the life of the individual. For instance, if you take out a whole life policy when you are young, it provides you coverage throughout your entire life as long as you pay the premiums. The premiums stay the same which is why it is a little more expensive because as we get older the cost of life insurance increases. To compensate for that fact, the whole life policy is more expensive at the beginning, it does not increase as you get older. So, what kind of life insurance do you need? Both to some extent. Current life circumstances and what you need money for should you pass away, factor into what type and how much life insurance you need. There really is no one size fits all. If you are not sure how to get started, speak to a life insurance advisor. Let us help you feel confident of protecting your family today!