Let’s face it, no one is getting out of this life alive. In other words, 100% of everyone ever born has died or is going to die one day. This is simply an inevitable fact of life, but how you prepare for it can mean everything to your legacy and the loved ones you leave behind.
In all my years of helping people get protected with life insurance, I haven’t met too many people that love life insurance. Insurance is merely a tool. Life insurance in not a very sexy product when you hear the words. It just doesn’t carry the same excitement and allure as Louis Vuitton, Tesla, iPhone, PS5, and Coca-Cola.
What I do know for certain is that if we could ask everyone that ever passed away without life insurance if they wished they had something in place before they died, the answer would most often be a definitive yes. Along with home ownership, life insurance is the greatest and most cost effective way to create generational wealth within your family. You may never have a million dollars in your bank account during your lifetime. There are many contributing factors to this equation. With great certainty, and for pennies on the dollar, you absolutely can leverage a small portion of your money today so that you can leave behind $1M, or even more to your spouse, children, parent, loved one, or charitable organization of your choice. This is a very powerful concept and is a big step to having all your affairs in order. Unfortunately, many people do not take advantage of the power of having their life, or their income protected with an affordable life insurance policy. You do not have to be one of them.
There are many types of life insurance policies and numerous companies to choose from. I want to highlight term life insurance because it is the most affordable way for you to have something in place in the event you pass away. Many people say they will wait, or even that they don't need it, so I want to address these things, right away.
I hear this and see this often and want you to know that this is a costly mistake. First, you never are going to be younger that you are today. I mean today. Life insurance is calculated based on your age and the longer you wait, the more it will cost when you decide to get started. Second, we are currently living amidst the greatest global pandemic in modern history. Although Covid will not immediately exclude you from getting coverage, you don't want to roll the dice and have that in your medical history before you apply for coverage. If you've already had Covid, congratulations for surviving the virus. Apply anyway.
Over the years, I have put together quotes for many clients who waited to begin the application process, and before they decided to move forward, a major health concern arose which put them into the category of uninsurable, or in a position where they would receive a table rating. A table rating is something in your history that will cause your insurance premiums to be increased by anywhere from 25% to over 200%. This is why it is imperative that you apply and attempt to get approved while you are still in optimal health. To put that in perspective, imagine you are perfectly healthy, but you wait to apply and become diagnosed with a condition. Let's assume your monthly premium would be $100, which is affordable for you currently. If you receive a table rating with a 150% increase to your premium, you are now looking at $250/mo instead of $100. For some people this is now unaffordable and they will now have to either go without their much needed protection, or they have to settle for a much lower amount of insurance that fits their monthly budget of $100. Don't let this happen to you.
I Don't Need Life Insurance
We agreed in the beginning that 100% of everyone will in fact die one day. I do understand where people are coming from that are single and have no children, but I'll share another perspective based on the clients I have worked with in the past. According to recent statistics from USDA.gov, the cost of raising a child, for a middle income family, is $233,610! I want you to think about your parent(s) for a moment. I once heard, that when a man loses his wife, he is a widower. When a woman loses a husband, she is a widow. When a child loses a parent, they become an orphan. There is no word in the English language for a person who loses a child. And there's good reason for this because it is the greatest loss that one could ever know. Imagine you passed away and your parents were in their 50's or 60's. Your death is the last thing they could have ever fathomed. For $20-$30 a month, you could have a policy in place for yourself and name your parent(s) as your beneficiary and essentially retire them from working, or at least ensure they have a very comfortable retirement, should they suffer this type of loss. Imagine paying off their house or buying them their dream home. What would that be worth to you?
Since we know you are going to die one day, someone is going to have to pay the cost of your funeral and burial, etc. This article states that the average funeral cost is between $8,000-$10,000. Depending on where you live, and what final arrangements are made by your family, it can cost thousands of dollars more. For pennies on the dollar, leveraging a very small portion of your income today, you can create a reimbursement, of sorts, for the large financial outlay that your family will have to come up with to handle your final expenses. Do you really want your friends and family to rely on a Go Fund Me crowdfunding page to deal with your final affairs? I see it happen all the time. For the cost of what you pay monthly for Netflix, you can have a policy in place to cover your final affairs and then some.
Last, do you have a relative that you truly care about? Maybe an aunt or uncle, or grandparent that helped raise you. Is there a person that did something for you so significant that you told them: How could I ever repay you? These are people that you can name as your beneficiary. For any small amount you could imagine, $10/mo, $25/mo, $50/mo, you could set up a policy where they will receive a large, lump sum, tax-free, cash payment in the unfortunate event of your untimely death. That is really the meaning of love. Taking action and showing the people that mean the most to you that you truly appreciate them and that you cared enough to enhance their life financially.
What Is Term Life Insurance?
Term life insurance is a contract you create with an insurance company where they promise to pay a specified death benefit to any person or persons you name in the event of your death. The term is for a specified period of time. Most commonly 10, 15, or 20 years, but sometimes up to 30 years. Your monthly premiums are a fixed amount for the duration of the term. Upon your death, within the term period, your beneficiary or beneficiaries will receive the stated death benefit, also referred to as the face amount. The best way to buy insurance is to buy what is affordable today. If you can afford, $100/mo for insurance, find out how much insurance $100 qualifies you for. If your current budget is $20/mo for insurance, apply today while you are healthy and lock in your protection based on your current age today. You can buy life insurance based on a specified death benefit amount.
i.e. $500,000 of coverage will cost ($xx.xx/mo)
You can also purchase insurance based on a dollar amount that you decide and "x" amount of dollars will buy you a certain amount of insurance. This is what I strongly recommend.
How Much Insurance Do I Need
There is no right answer and this varies from person to person. When I sit down with every one of my clients, I always educate them on the concept of Human Life Value. Most people have never heard this term and they always appreciate me sharing this. If a child, a spouse, a life partner, or parent, depends on you and your income, you need life insurance. To calculate your human life value I want to illustrate all lost wages your dependents would suffer in the event of your death. Let's pretend you're 35 and you plan on working to age 65. You currently earn $67,000 a year so $67,000 multiplied by 30 years is $2,010,000! This is not factoring raises over that period of time. I also do the same calculation for any additional income such as pensions, and social security and add them all together. As you can see, this figure is very large, and this is the money your family will miss out on if you were to pass away today. So assuming there was no other income, pension, or expected social security income, I would feel confident in recommending you apply for a 30 year term policy for $2,010,000. Believe it or not, the cost for term insurance for this amount is often far lower that you might imagine. The only way to be sure is to talk to a licensed insurance agent and get a quote.
When calculating the amount of coverage that is right for you here are just a few questions to ask yourself:
If I died today how will the loss of my income affect my family?
What impact would my death have on the current lifestyle of my family?
Will my spouse need to work an additional job? What would that look like? For how long could they reasonably work two or more jobs?
What assets do I currently have and how will that be a factor?
How will my mortgage and car loans be paid off?
How will my outstanding debts be paid off?
Do I have enough money saved to send my kids to college?
Do I have aging parents that I may have to financially support?
The decision to protect your life with a term life insurance policy should be a simple and easy one. You may have been wondering what if you want your policy to last longer than the specified term. That's a great question. Most term policies have a conversion privilege that allows you to convert it to a permanent policy, down the line, as your needs may change over time. Be sure to find a policy that has this option. Among the various life insurance policies on the market, term life is the lowest cost for the most insurance and you can't go wrong by locking in your good health today. You will need to qualify medically and be approved by a process called underwriting, so it is important you try to get qualified before anything occurs that can negatively affect your approval. Buy a policy that you can afford currently, not what someone else tells you you need. If your budget today is $30/mo, then that is a million times better than having nothing. You can always add more insurance as your needs change and you earn more income. I hope I have helped you understand how a term life insurance policy can reduce stress, anxiety, and create immense value in your life, as well as protect and enhance the lives of those you most hold dear.
John Hall is a Financial Advisor and Life Insurance Agent at Americana Financial Group. This material is for educational purposes only. If you have questions about what insurance plan is right for you, or to receive a quote for life insurance, contact: firstname.lastname@example.org