Do YOU Have Life Insurance?
This question is quite simple, yet it is a very vital one. One that many don’t think about until it’s too late. Life insurance is very important and something you should act on having TODAY.
No matter where you are in your financial journey, Life Insurance is critical.
I just relocated to another state and purchased a new home. This is an important time to evaluate if my current coverage is adequate. It also makes me wonder how many of you have coverage in place to protect your family.
The only thing that is guaranteed in life is death. Today, life is uncertain. Unforeseen events such as accidents, deadly diseases, sudden and terminal illnesses are a very dominant part of our world; yet, so many people DO NOT have life insurance. This is astounding! Without a good life insurance policy, your family is vulnerable if something unexpected were to happen to you. They would be devastated; but that can all change if you act now.
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I encourage you to take a look at your current policy and make sure that it meets these following criteria. If you don't have a policy in place, you can use this as a guideline to get a policy in place ASAP:
Purchase term insurance. Not whole life!
Very important. Whole life policies, also known as cash value policies, are more expensive, many times over. Here are the premium differences from an article on Nerdwallet.
Whole life policies are sold as investment products combined with life insurance. As an investment product, they have a horrible rate of return and it dies when you die. This means your family won't have access to this money. It goes right back into the pockets of the insurance company.
Take a look at the example below of a 30 year old female, the difference per year is almost $2,000 between whole life and 20 year term. If you invested that $2000 per year for those 20 years with a 10% rate of return, you would have $114,550.
This money would far exceed the cash value from a whole life policy and can be passed down to your dependents or beneficiaries.
Your coverage amount should be 10-12 times your income.
The goal is to leave your family and loved ones in a comfortable financial position. If you make $100k you should have at least a $1 million policy. Insurance proceeds should be invested and the annual returns should be enough to replace your earnings.
Assuming that you will get a 10-12% rate of return, this would give your family $100,000 a year to live on. Therefore your income is replaced without having to touch the insurance proceeds.
Choose a 15-20 policy term.
15 to 20 years should be enough time to set yourself up to be self insured. This mean that you should have your assets aligned, to the point where your dependents or beneficiaries can live comfortably. Ideally, your house should be paid off and your savings and investments could be used to replace your earnings. Any minors you were protecting your assets for, should by then be adults and are no longer dependent on you.
Though self insurance is the goal, you should also have enough money to buy a new term policy if you wanted to. Of course at this point it's optional, and not essential in protecting your assets.
Insure your spouse even if they are not employed.
The economic value of a stay at home parent cannot be understated. If something were to happen to your partner that primarily cares for your children, you need to have care that is covered by a nanny or equivalent. At a minimum, you should have $500,000 in coverage to pay someone $50k per year to assume care taking duties.
Get your insurance through a reputable company.
Premiums for life insurance should not break your leg, ...literally, and while there are many brokers out there, you need a company that you can depend on. I strongly recommend going through an insurance brokerage like PolicyGenius. They have competitive rates and you can get a quote in just a matter of minutes.
If you or a loved one have a medical condition that would not usually qualify for a standard term policy, there are policies offered by your employer or bank with lower premiums. These are guaranteed and don't require passing a health exam. This would provide the coverage needed for burial and end of life expenses.
It is always a good idea to review your life insurance policy, periodically. It pays to ensure that you have enough coverage for your current needs. Life events such as salary increases or health changes could cause a change to your premium. Your coverage needs may be affected as well.
Evaluate your policy on a regular basis.
As I mentioned earlier, a move or a major purchase is a great time to evaluate your current coverage or to make sure you have a policy in place. Some other life events that warrant updating your policies and beneficiaries are marriage, divorce, and the birth of a child.
Due to new FinTech companies introducing new services and more competition in the market in general, life insurance premiums are more affordable than ever. Even as you age you might find that there are more affordable policies out there to meet your needs.
As a general rule of thumb, check life insurance quotes at least once a year. Heck, while you're at it get quotes on all your insurances (home, auto, etc.).
Make sure insurance is part of your budget.
Like any other expense, life insurance premiums need to be included in your budget. Premiums can be set up to draft monthly, quarterly or yearly.
If choosing to pay the premium once a year or any time frame less frequent than monthly, set up a fund in your budget. A fund allocates an amount per month to save towards the premium. This insures that when the payment becomes due, you have the money set aside.
I strongly recommend using EveryDollar for budgeting. Here is how you set up a fund.
“We plan to fail if we fail to plan” is a very common but true saying. Having life insurance is a wise choice that will help family and loved ones cope in the event of tragedy. Make preparations needed today, for your family tomorrow.