Life Insurance? Why do I need it?
Most people do not get excited about life insurance. None of us want to think about our own mortality or that of our loved ones. However, not planning for the future can leave your loved ones unprotected in a most vulnerable time in their lives. Life insurance offers financial protection for you and the ones that depend on you.
You may be asking, “Why should I buy life insurance.” Here are just a few reasons:
To pay Final Expenses – No matter when we pass from this world, our final expenses will have to be paid by someone. If we do not plan for them, it will fall to our loved ones. The average cost for a funeral in 2016 was $7,000 to $10,000. Even if we choose cremation with a memorial service, the cost is still $4,000 to $6,000 dollars. Also a large portion of the time, costly medical bills are be part of our final expenses. No matter our age, someone will be responsible for them.
To replace Current and Future Earnings – The death of a wage earner can cause financial difficulties for a family. The mortgage still will have to be paid as well as normal household expenses. Future expenses, like college tuition for your children, will also have to be provided by someone. Life Insurance can be structured to pay off your mortgage, start a college fund and provide income replacement for a set time period. This will allow you loved ones time to grieve their loss without the added stress of addressing these needs.
To create an Estate or pay Estate Tax – We do not have the time here to discuss this in fully. However broadly speaking, most people will want to leave their children an inheritance, facilitate a business succession plan or pay state or possibly federal Estate Tax without diminishing what they have built over their lifetime. Many small business owners, including farmers, find that one or more of their children will not be interested in taking over the family business. With life insurance, they can leave the business to the child or children that are involved with it while giving those that are not interested the cash value of their inheritance.
To facilitate Business Goals – Funding a business transfer, giving deferred compensation to key employees or protecting the business from a loss of a key employee are three primary ways. The death of a business partner can effect a business in so many ways. Being able to purchase the heirs portion of the business is not only helpful to the business but also to the heirs themselves, who may not have the interest or experience to help run the company. Like any other key employee, a business partners expertise will be difficult and expensive to replace. Life insurance can help a business facilitate this without harming the stability of the company.
What do I buy?
There are several types of life insurance. Everyone has an opinion about which is best . However the truth is that like any product, no one type is best for every case. To be honest, a mixture of products will probably provide you the best coverage over your lifetime.
Term Life – Term insurance is just want the name sounds like. You purchase it for a set term, or amount of time. It will generally be for 5, 10,20 or 30 years. Cost and ease of purchase is two of the main advantages of term insurance. While it may be cheaper up front, it can be the most costly over the course of your life. It is important that any term policy you buy be renewable and convertible. To learn more about this contact one of our advisors.
Whole Life - This type of insurance is meant to protect you for the entirety of your life. Once the policy is issued, the premium will remain the same throughout the payment life cycle. Most companies will provided different payment options, such as single pay, five pay, ten pay, payments to 65, 90 or 110. Each of these options will determine not only the amount of each payment but also the total cost of the policy over its lifetime. For example, a $50,000 single pay whole life policy for a child under 1 year of age can cost $3,950. The same policy with payments to 65 can cost $150 per year or a total of $9,750 over the payment lifetime. One of the unique advantages of the Whole Life policy is its non-forfeiture benefits. After the policy begins to build cash value, the policy gives you three benefits if you determine you do not want to continue to paying the premiums. First, you can surrender the policy and receive cash equal to a portion of what you have paid in. Second, you can covert it into a paid-up policy with a lower insurance amount. Third, you can converted it into a paid-up term policy with the same insurance amount.
Universal Life – This type of policy combines term life with a cash account to create a flexible policy that can be changed as your life changes. While it can be a great policy for many purposes, it is also the most complex and difficult to understand of the three main types of life insurance policies. Like the Whole Life policy, it is meant to protect you for the entirety of your life. Life the Term Life, the premium will adjust as you age.
How much should I buy?
There is no answer that fits everyone's needs. At some times in our lives our needs may be greater than our budget can afford. That is why sitting down with a professional agent or financial planner is so important. Either can help answer the “how much” and he professional agent can assist you in providing a plan that will give you the flexibility and security you need now and in the future.
When to buy?
This is often the hardest question to answer. Our lives are always changing and our life insurance needs change, too. Marriage, a house, children are always life event that make people think about this question. My advice is to buy young and to review with a professional agent often. This will help you protect your loves ones throughout your life and help you save the most money over your lifetime.
Call one of our advisors today to help you plan for your future.