Life insurance is an important part of the financial plan. It can protect loved ones from the financial burden of the sudden loss of a provider. Not everyone will need life insurance, and the need for life insurance can change throughout an individuals life. Within this blog post you will find a couple of useful pieces of information to consider when discussing life insurance. So, to start with who needs life insurance? The best way to answer that question is to look at who would be affected if you were to suddenly pass away? Who is dependent on your income production? If the answer is that no one would suffer a significant burden in the event of your passing, then you probably don't need life insurance. If you are a person that is married, has a child or several children, you have a mortgage, or a number of other factors, you probably need life insurance. When we look at the family unit, what happens when a husband, wife, or life partner passes away? You will lose out on a significant portion of income for the household. While the loss of income can be significant, that does not mean a reduction in expenses will be significant. It may just shift the burden from two people to one person. The mortgage does not go away just because a member of the household has passed away. So how does an individual provide surviving loved ones with protection? How can we protect our family from the loss of income, how do we pay for the future cost of college on one income? How do we process the emotional loss of a loved one, without increasing the amount of stress related to the finances? Life Insurance!
Life Insurance like so many aspects of investing and planning is time sensitive. The younger you are, the cheaper the insurance. The better health you have the cheaper the insurance. Even being male or female can affect the premium of a policy. Term life insurance is the cheapest way to provide insurance for your loved ones. The way term life insurance works is pretty straight forward. You submit an application for a death benefit amount that will cover a period of time. The term of the contract could be anywhere from 10, 20 or even 30 years. If you were to pass away during the term, your loved ones would receive the death benefit. The death benefit could be for $100,000 or even a $1,000,000. The basic premise to pricing is that the longer the term of the contract, the more expensive the premium. That is because the insurance company is more likely to pay out the death benefit on a 30 year term policy versus a 10 year term policy. Also, the higher the death benefit the more expensive the premium.
When deciding how much death benefit an individual will need, the individual might look at how much income they would produce over the next 7 or 10 years. If you were to make $30,000 a year, you may want a death benefit of $250,000 or $300,000. The death benefit will replace your lost income, and help your loved ones navigate the changes they will encounter. One of the biggest differences in how much a policy will cost is if you are a tobacco user or not. For example a non-tobacco using 35 year old male in perfect health may be able to purchase a 25 year term policy with death benefit of $300,000 for an annual premium of roughly $245. (this is a generic quote, using A+ credit rated companies, please contact me for an actual quote specific to your needs.) Now that same person that is a non smoker, that is less healthy (maybe high cholesterol, and blood pressure) may find there rate to be as high as $450 depending on the results of the underwriting of the insurance company. Now watch what happens when we add tobacco use to the quote. The same 35 year old male looking at a 25 year term and $300,000 death benefit could pay anywhere from $872 a year to $1177 a year in premium on underwriting. The insurance company can even say that an individual is uninsurable based on what the underwriting discovers. Tobacco use or not.
I hope that this information is helpful when you are considering if you need life insurance and how much. Please contact me with any questions or if you would like to see a customized quote unique to your situation. We also offer no cost insurance reviews to make sure the protection you have in place matches what you would like to protect and within your budget.
Sample insurance figures are provided for illustrative purposes only and should not be considered specific investment advice or recommendations for any individual.