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You wouldn't ever let them go without life preservers, what about life insurance?

The Question: To Buy or Not Buy Life Insurance

The one question everyone must ask is, “if I died tomorrow, would I leave a loved one in a financial bind?” If your answer is “yes,” consider life insurance.  Then ask, “do I like paying really high commissions for something that I can do for myself?”  If your answer is “yes,” then buy a whole life policy. If your answer is “no,” read on.

Financial Security For Your Loved Ones

The goal of life insurance is to protect your family from the financial impact of your unexpected death. It surely is not a pleasant topic. But it’s one that any responsible spouse or parent should think about.

Here is how life insurance works. You buy a policy for, say, $1 million. Each month, you pay the insurance company a premium of $100. Five months from now, if you die from cancer or in a car accident, the insurance company pays your spouse or children $1 million, free of taxes. Your family is devastated because you are not at the dinner table. But at least they don’t have to worry about how to pay the bills at the end of the month.

How much do you need? The money your spouse or children receive must cover expenses until they can be financially independent. For parents, that is generally when your youngest child turns 18. There are different ways of getting to this number. Insurance companies are exceptional mathematicians when calculating their risks and profits, but awful when it comes to how much insurance you’ll need.  Their typical rule-of-thumb is 10x your income. We can help you easily determine what you’ll really need, for free.

Term Vs. Permanent Policies

Term Life is the most basic of life insurance policies. You’ll buy a 5, 10, 20, 30 year term and pay the premiums each month.  If you die during this period, your loved one gets a check. If you survive the term of the policy, it expires and that is it.  The biggest advantage is that it is the cheapest. Permanent insurance never expires and has two components including the insurance part and the savings/investment part.  But keep in mind that the premiums are much higher.  Part of it will pay for the insurance premium. The rest will build the “cash value” part of the policy. What most people don’t realize is that for the first 10 years or so, most of the premium goes towards paying the agent’s commission and the insurance company’s fees. And if you cancel the policy prematurely, there are heavy penalties. Under some circumstances, permanent policies may make sense. But for most families, it makes more sense to buy term life and invest the difference.

Our Tips and Advice

1. Do You Need It? Ask yourself this one question.
2. How Much? Calculate how much your family needs to cover their expenses until they are financially independent.
3. Term or Permanent? For most families, we recommend term life insurance. If you are in your mid-thirties or younger, it may save you money to buy an insurance ladder. We feel that the fees and commissions associated with permanent policies do not come close to justifying the value they deliver.
4. Where To Buy? Use an agent or broker that you trust. If you don’t know one, we recommend two large and reputable brokers: Accuquote and Selectquote. Their consultants will help you figure out which insurance companies will give you the best deal, walk you through the paperwork, and schedule the medical exam appointment.
5. Have Things Changed? Reassess your insurance needs after major life events such as having another child, buying a home, etc.