For most individuals, their initial encounter with life insurance is when a good friend or relative gets an insurance license. In my situation, a college buddy, recently employed by a major insurance carrier, approached me and many other friends to purchase life insurance from the company he represents.
Regrettably, however, this is how many individuals obtain life insurance – they don’t purchase it, it is sold to them. But is life insurance something that you truly need, or is it merely an inconvenience shoved under your nose by a salesperson? While it may seem like the latter may be the case, we know, however, there are in reality many reasons why we should purchase life insurance coverage.
To Pay for Final Expenses: The cost of a funeral, burial, or cremation can very easily run into the tens of thousands of dollars, and I do not wish for my wife, parents, or children to be affected financially in addition to emotionally at my passing.
To Pay Children’s Expenses: Like most parents, I want to be certain that my kids are well taken care of financially so our children can obtain a quality college education. This is exactly why additional insurance coverage is absolutely crucial while my children are still at home.
To Replace the Income of My Spouse: If my spouse passed away unexpectedly while our kids were young, I would’ve needed to replace her substantial income, which was required for the lifestyle we enjoy. I would have also had to have help with household tasks we had shared like cleaning the house, doing our laundry, food preparation, helping with homework, and getting the kids to soccer practice and games. For this reason, I found the simple solution was to purchase life insurance.
Pay off Family Debt: In addition to supplying an income stream sufficient to deal with everyday living expenses, my family members would need enough insurance proceeds to deal with debts like our home mortgage so they wouldn’t need to sell the home to pay living expenses.
To Continue Saving for Retirement: Certainly, when a breadwinner dies, the portion of his or her income that was going towards retirement needs to be replaced in order for the surviving spouse to have sufficient retirement funds when they stop working.The best method to contend with this is to purchase life insurance.
How Much Life Insurance Should I Buy?
The face amount, of an insurance policy (the death benefit), should be sufficient to replace the after-tax income the policyholder would have earned had they lived a long life, assuming you can pay the monthly insurance premiums for that amount. In other words, your insurance benefit will replace the income you didn’t have the opportunity to earn by living and earning until retirement because of dying unexpectedly before you retire.
By having a sufficient amount of life insurance, it will allow your family members to continue their lifestyle, even when your income is no longer available to your family. The correct amount of insurance that you should purchase is dependent upon your present income and probable future income.
Should I Buy Term Insurance or Whole Life Insurance?
Whole life is considered the “Cadillac” of life insurance; its sponsors attempt to do almost everything for you, especially investing a chunk of your insurance premiums so the annual cost of the insurance doesn’t increase as the policyholder ages.
The investment feature of the insurance policy means that the insurance premiums are typically higher than a comparable term policy with the same death benefit. After all, the whole life insurance policy is supposed to cover you for your whole life.
Term life insurance, conversely, is a stripped-down version of whole life insurance. There are no added premiums to be invested by the insurer, and no guarantees or assurances further than the end of the policy term, which can vary from 1 to 30 years. The annual insurance premium for a term insurance policy is normally less than whole life insurance, without the investment component, but your insurance premiums will rise (often significantly) once the policy period expires.
Both kinds of life insurance plans or a derivative of them have advantages and disadvantages; both types of policies have their place dependent upon the requirements, preferences, and financial objectives of the customer. A knowledgeable and reputable insurance agent could help you determine which kind of policy is best for you and your family depending on your circumstances. Nevertheless whichever type of coverage you decide on, be certain that you have adequate coverage to meet your goals and objectives in both, the short term and the long term.
The Bottom Line
Many individuals are mistakenly convinced that life insurance is a scam. This is because of the fact that the money invested is lost if death doesn’t occur during the course of the policy period (in the case of term insurance), or because most individuals live to a ripe old age and continue to make their permanent life insurance premiums. These types of naysayers compare life insurance protection to gambling and go without insurance protection completely.