Updated: Oct 14, 2020
Life insurance should be just as important to your household as your investments. Some would even say it is vital. So then why don’t we hear about it often or why isn’t it something we are forced to buy? Maybe it’s because we don’t understand it or maybe we just don’t like talking about death. I don’t blame you, but to shed some light on the wonderful world of life insurance, here are 7 things you need to know.
1. If anyone relies on you financially, you need life insurance.
It‘s essential if you are a spouse or a parent of dependent children. You might also require life insurance if you are someone’s ex-spouse, life partner or a child of dependent parents, a key employee, or a business owner. If you don’t have dependents/no one would suffer financially if you were no longer around then you don’t need life insurance. But don’t count out the fact that it can be used as a strategic financial tool as well.
2. Life Insurance does not apply a value to your life.
The amount of times my clients have clapped back at me saying “so I am only worth $300,000.00?”. Of course, you’re worth more than any life insurance policy but the amount helps compensate for the inevitable financial consequences that accompany the loss of life. It helps those left behind cover the costs of final expenses, debts and mortgages, planned education funds and lost income.
3. Your life insurance is a contract.
A life insurance policy is a contract between a life insurance company and someone who has a financial interest in the life and livelihood of someone else.
The insurance company you have your policy with pools the payments (premiums) of policyholders and pays out the claims (death benefits) in the event of a death. The difference is a profit for the insurance company.
4. There are two types of life insurance: term and permanent
Term life insurance is the simplest, the least expensive, and the most widely applicable. Premiums are guaranteed for the length of the term, after which the policy becomes much more expensive to maintain.
Permanent Insurance is meant to keep for your whole life to protect against end of life expenses. It also has a savings mechanism that is often referred to as ‘cash value’. They tend to be more complex and expensive but that’s because it lasts forever, and there are solutions that can be used for business planning/high net worth estate planning cases.
5. Life insurance costs vary.
It all depends on your health, age, gender, build and lifestyle habits. But, if you get a permanent policy with all the added features the size of the premium could be very expensive. If you are a 28-year-old female, non-smoker who wants 1 million dollars in coverage for 20 years, you might be surprised to know that your policy will cost you less than 500 dollars a year (that’s one coffee a day, Starbucks that is).
6. It doesn't have to be complicated.
You can get really detailed and go very in depth with a needs analysis but as long as you feel comfortable and comprehend your policy, your household will be well cared for.
7. Consider using a specialist.
Yes, it is so much easier to just google an online tool that can assist you in how much money you need in life insurance and what product to get. But, considering the complexities of life insurance, sitting down with a specialist will help you in more ways than one. They can walk you through the application and underwriting process, they can advise you to stay clear of a certain company due to their products not lining up with your specific needs, and broadly, they can make the process seamless.
Talking about life insurance isn’t sexy, but it is necessary. Discussing unexpected deaths can give you piece of mind for the future. Buying life insurance is an important part of your long term financial plan.