I have learned much over 45 years of helping people solve financial problems using insurance products. I am sure I average 120 hours each year of classroom continuing education. If you add up 45 years of this, it means I have over 6,000 hours of advanced life insurance training. I am at the very least, competent to discuss concerns you need to know about life insurance.
First of all, I would like you to think of life insurance like a parachute: If you ever need a parachute and don’t have it, you will never need one again. I am not trying to be funny. I hope you can see what I have witnessed over and over again in my career as a financial coach when people choose not to be prepared. Most people have family values like college education for children, or income security, or family vacations, or a comfortable retirement. But ask yourself what would happen to these values if you died today? Usually upon your death, values will remain, but too many times these values and dreams associated become impossible to achieve financially.
When you purchase life insurance, it is to help in the event of death. Life insurance is truly an act of love. The person buying it will never see the benefit during their life. They trust the insurance company will be honorable to their contract and pay when they die. So in short, if a person is making an income of $80,000 a year and works for 45 years, that equals a $3.6 million potential income for that family. But if the person dies in the first ten years of employment and doesn’t have life insurance, spouse and kids will lose $3 million or more. Families struggle all the time when the main income earner in the family dies.
Questions and Answers about Life Insurance
- How much life insurance should you have?
- What kind should you purchase?
- How will you pay for it over the years?
- How should you select which company to work with?
- How do you find an agent who holds your values and interests before theirs?
How much life insurance should you have? Generally speaking you should purchase a policy that will cover seven years of income or you should have enough money to pay off all debts and funeral expenses, and leave enough money for children’s education and savings in the bank earning enough to pay for all expenses for the life of the surviving spouse.
What kind of insurance should you buy, term or whole life? The kind of life insurance to purchase has mostly to do with your age and health, not your budget. Most people do not realize that you really buy life insurance with health, not so much with money. For example, a 10-year term policy of $500,000 might cost $12 a month for a healthy male age 40. But what if the ten years passes and premiums are going to increase because you are older and more likely to die? How much can you afford then? And what if your health changes and you cannot find an insurance company to give you a contract at all. This is a bad position to be in, simply because if your health deteriorates you cannot buy life insurance. When people have health issues, they will also die much sooner than normal life expectancy. So term insurance is really only for those who are younger and healthier. They would purchase this insurance in the event that they got suddenly sick or were killed at a relatively younger age in order to protect their family.
Another statistic about term life insurance shows only 1 percent of all life insurance pays the death benefit. People usually do not die until after the term life premiums get so expensive they have to quit paying, and then they die. The only way to win is to purchase whole life that offers a level premium with cash values building up until you die, and is guaranteed to pay up and until age 121. The problem is, whole life can be very expensive the older you get.
In future posts I will discuss more how whole life works and when it is desirable to purchase. Understand that life insurance companies have millions of lives insured and they can predict with utmost certainty how many will die this year, or next. They know how to play the insurance game, and so should you. More to come about companies to consider, how to pay for whole life, and which agents to work with.