Life insurance is an important part of any family’s financial plan, but many people are unwilling to face the thought of death. Unique life insurance lingo and the number of different options available can be overwhelming and confusing. In a 2007 Prudential Financial survey, 50% of consumers surveyed said that life insurance is too complicated to purchase. Using the 5 “W’s,” I will explain the basics of life insurance:
1. Who Needs Life Insurance?
Anyone who has dependents needs life insurance, but even single people should have enough life insurance to pay off their debt and final expenses. The common argument against purchasing life insurance is that you have to die to benefit from the purchase. Life insurance is a gift that keeps on giving to those you love after your death. It can also be a gift to yourself in the form of peace of mind.
2. What Kind of Life Insurance Should I Buy?
To put it simply, there are 2 basic types of life insurance: Term and Permanent.
Term life insurance is like renting an apartment. You have a term or period of time that you lease the apartment and after that term, the contract is void and you usually have to find a new place to live or must pay more to renew your lease. Like an apartment lease, term life insurance Austin is for a specific period of time such as 5, 10, 20, or 30 years. The premium and death benefit are guaranteed for a specified term. After the term is up, you can either pay more to keep the policy in force or move to a new policy, which will usually cost more as you age. Since there is no cash value with a term policy, term insurance is usually the least expensive option.
Permanent life insurance is like buying a house. If you pay your mortgage and taxes, you can pay off your house and live in it for life or until you decide to sell. No one can take your house away from you as long as you are current on your mortgage payments and taxes. The same is true with permanent life insurance–as long as you pay your premiums, you will have life insurance for life. You will also build up cash value over time that you can access if you no longer need the insurance or want to take a cash withdrawal from the policy, Although permanent insurance is usually more expensive than term insurance, it never terminates as long as make your premium payments and there is enough cash value in the policy to keep it in force.
3. When Should I Buy Life Insurance?
You should buy life insurance when you are young and healthy. Unfortunately, many people wait to buy life insurance until they are older and have health issues. Even if you take blood pressure or cholesterol medication, your rates are usually higher. Be proactive and purchase life insurance while you are still young and healthy, so you will qualify for the best rates.
4. Where Should I Buy Life Insurance?
Believe it or not, 90% of life insurance is still sold over a kitchen table, but this is gradually changing as more life insurance is purchased online. Although this may sound self-serving coming from an Allstate insurance agent in Austin, TX, I recommend working with a licensed insurance agent who can help you determine your needs and will take the time to explain your options. You may end up paying less for life insurance when you buy it from an honest local agent rather than purchasing insurance over the internet from a stranger in another state or country.
5. Why Should I Buy Life Insurance?
Life insurance gives your beneficiaries immediate liquidity and the proceeds are not subject to taxation. The statistics are appalling for the percentage of children under the age of 18 who descend into poverty after the death of a parent without life insurance.
How Much Life Insurance Do I Need?
The amount of life insurance that is right for you and your family is not a number you can pull out of a hat. Some people think that 4 times their annual salary is enough, but the calculation is not that simple. You must consider factors such as how much you owe on your house, social security benefits, education expenses, retirement benefits, credit card and other debt.
Many people think that the life insurance they have through their employer is all they need and will last till retirement or death. It’s important to note that employer sponsored life insurance may end if you leave your job. It is common for people to make career changes at mid-life and find out that they can no longer afford or qualify for life insurance.
Ask yourself this question:
“If I offered to write you a check for the amount of life insurance you currently have today, would you be willing to work for me for free for the rest of your life?”
It’s a good question to ask yourself when determining how much life insurance your family would need if they lost your income. E-mail or call me, Cheri Roman, at 512-282-9999 if I can help you.