How does term insurance work?
Simply stated, if you purchase a term insurance policy (or multiple life insurance policies) and you die while the insurance is in-force the insurance company pays out the full coverage amount in a lump sum, income tax-free. Your named beneficiaries can then invest that large amount of money to replace the loss of income.
Why is life insurance the most cost-effective way to protect those who are depending on your income?
The moment you secure life insurance your family, loved ones, and/or business partners, they are protected for the full face amount of the coverage. Term Life insurance is also very inexpensive. Unless you have hundreds of thousands already saved, how else can you immediately guarantee the future financial security of those you need to protect without being insured?
Do I need Life Insurance?
You don’t NEED Life Insurance, however, if protecting your family or loved ones who depend on your support against the loss of current income is the primary reason to secure term life insurance and you may WANT to be properly protected. If you suddenly become terminally ill or have a fatal accident and die prematurely how will these people maintain their current expenses & lifestyle. Term life insurance is the best solution.
How much life insurance do I need?
It depends completely on how well you want to protect your family and loved ones. The “10 times rule” is a good place to start when trying to calculate how to replace your income. If you earn $100,000 and get insured for $1,000,000, your survivor beneficiary could invest the $1,000,000 death benefit and if they could earn a consistant 10% annual interest it would replace the $100,000 income forever. However, since it is not realistic that he/she will earn a 10% annual rate-of-return consistantly you may want to be covered for more than 10X income.
How much life insurance can I get?
The general rule on the maximum amount of death benefit you can secure is based on current age:
- Under age 40 = 20X income
- Age 40 to Age 50 = 15X income
- Age 50 and over = 10X income
- You can also apply for an amout up to your estate value.
Term-Life Insurance Options
Term life insurance is secured for guaranteed level time periods, such as 10-years, 15-years, 20-years, or 30-years. During this time frame your coverage and premiums remain level. Premiums can’t be changed even if your health does and that’s extremely important. When the level period ends so does your coverage. You can also cancel the coverage anytime.
Most people buy life insurance to protect their income for as long as they plan to be working, at which time they will have enough savings, investments, and Social Security to generate enough income to be able to retire and no longer need life insurance.
Is term life insurance better than other types of life insurance?
Term life insurance requires considerably less cash outlay than permanent life insurance, as low as 1/10 the premium. This is because term insurance is pure protection only and covers you only as long as you continue to pay premiums. Permanent life insurance, also known as whole life insurance and universal life insurance, is completely different. The insurance company charges a higher premium to advance pay for the future higher mortality costs as you get older. They invest part of the higher premium deposits into an account that builds cash value which could offset the increased mortality costs and potentially keep you protected for your entire lifetime. There are many varieties of permanent life insurance and should be thoroughly studied and understood before purchasing. Neither type is either good or bad, they are just different and each do what they are designed to do.
What is the down-side with term life insurance?
The primary problem with term life insurance is that it offers temporary coverage (10/20/30-years) and there is nothing to show for it if the term expires (hopefully) before you do.
The Best Way to Buy Term Life Insurance
Shop the marketplace! If you are in overall good health then qualifying shouldn’t be a problem. You may want to consult with a life insurance expert (me) regarding your personal circumstances, including:
- Proper Coverage Amount
- Length of Term
- Any current or past health issues or concerns?
The final cost of life insurance coverage depends on your personal health situation. If you have a current health condition or past medical history you should speak with a specialist to pre-determine the best way to get you the coverage you want and the best possible offers. We do this by submitting a pre-underwriting inquiry and obtaining potential “realistic” offers from the vast number of term-life insurers in the marketplace.
The Bottom Line…
If you have people who depend on your income (or your spouses income) you owe it to those loved ones who would be impacted financially to get properly protected. So take a few minutes to get a quote or call me to further discuss and special circumstances. There is no obligation to do anything, however you will be taking the first step toward providing a secure financial future for your family no matter what. Take a moment right now and get your quote. You’ll be pleasantly surprised how inexpensive it is to secure the coverage you want, should have and probably need, and gain extra peace of mind knowing that the ones you care most about will be properly protected.