With Valentine's Day coming up, it's gotten us thinking about our loved ones and what we're doing to make sure they're taken care of. This holiday, we are excited to share with you some reasons we think life insurance is important!
Having financial security for your family is such a simple way to help take care of them, even after you're gone. While there is no wrong time to sign up for life insurance, the truth is: the sooner the better. Not only do premiums go up as you age, you never know when something might come up and then it might be too late for a company to agree to take you on.
Most life insurance policies for healthy individuals cost around (or under) $50 per month and can bring a peace of mind that is unrivaled. Although life insurance is important for people of all ages and walks of life, Steve recommends that people start a policy before the age of 35, if possible. The question, then, is: What the heck is the difference between "term" and "whole" life insurance and which is right for me??
Simply put, term life insurance policies typically run for a set number of years and if you die during that time period, the predetermined cash benefits will go to the beneficiary. Since term life insurance policies are generally a bit lower in cost, they tend to be more popular, as well.
Whole life insurance policies cost more, with the primary reason being that not only do they provide tangible cash benefits, they also provide coverage that lasts the span of your life and are guaranteed to pay out at the time of your death.
Pros of Term Life Insurance
You can choose the term of the policy, so it only lasts as long as you choose. You won’t have to pay for insurance that you don’t need or want.
Very straightforward and easy to understand! You basically only need to know 3 things: the term (length of time), the premium (your monthly/annual payment), and the death benefit (the amount your beneficiaries will receive).
Typically less expensive when compared to whole life insurance.
Cons of Term Life Insurance
Your policy will expire when the term is complete, so it doesn't necessarily last your whole life.
Some plans have premiums that are not fixed, which means fully understanding the plan you choose in advance.
Pros of Whole Life Insurance
The premiums are fixed and will never increase.
The cash value of the policy can be taken out as a loan, and the cash value can grow tax-deferred, though you must pay interest to take out your own money.
Your beneficiaries are guaranteed to receive the death benefit payment regardless of when you die, with the caveat that all the premiums have been paid.
Cons of Whole Life Insurance
Compared to Term Life Insurance, the premiums are much higher.
Terminating or surrendering can be costly.
Whole life insurance is permanent, so there's a chance you could continue paying for it even if you decide you no longer need/want it.
How much life insurance will you need?
Your policy will need to cover the following three areas:
Any and All Debt: Your policy should cover of your debts and liabilities including, but not limited to, credit card debt, car loans, mortgages, unpaid taxes, etc.
Income: Calculate your gross salary and multiply it by 5. For example, if your salary is $50,000 that would be $250,000.
Future Obligations: Finally, set aside money to help your children pay for college (if this is something you’d like to do for them). Estimate this amount by taking the cost of attending a [local] 4-year college (tuition + room & board) and multiplying it by how many children you have.
Once you tally these numbers, you should have approximately the minimum amount of benefits for your personalized policy, in order to cover your loved ones' costs for five years after you're gone.
Which type of insurance is right for you? That depends on a number of external factors; give us a call with any questions or to get a quote!
