How often do you purchase something and hope you never have to use it? Term life insurance is one of those things.
While not always fun to think about, unexpected death happens everyday to someone and financially secure people prepare for these types of situations. The way you determine if you need life insurance is if anyone counts on your income, such as a young family.
If you don’t have any dependents, a spouse, and you don’t have any debt that would transfer to someone else (a co-signed loan), you may choose to not get life insurance. At that point you are, what I call, self insured. Meaning if you did die, then those in your life would be financially okay. If this is not you or your family, then here are five reasons that mean you need life insurance:
1. You have children
Term life insurance is a great way to financially protect your family when you are first getting started on building wealth. A life insurance policy that is 10-12 times your annual income could be used for your family to continue to live off of in case you passed away early. The reason for 10-12 times your annual income is at a 10% rate of return, the income from the investment would equal your salary when you’re no longer able to provide it, forever.
You may hear that you can also use a life insurance policy as a way to leave an inheritance for your children and I would NOT recommend term life insurance as an investment strategy. This is a way to provide to your family if you did pass unexpectedly. Once you become self insured, then you can use that money you would have been paying on life insurance to build wealth and leave actual investments to your children or grandchildren.
2. You’re married
Sometimes, couples depend on each other for financial and household support. This goes for stay at home parents too! Even though they do not have an "income" to bring into the home, they still have a monetary value. The surviving spouse may need to hire help or reduce their hours they work to take over the roles to take care of the children. Without your income, would your spouse be able to keep up with all of your current financial obligations? If the answer is no, a life insurance policy is worth investing in to help your spouse maintain the same lifestyle they were living before your death.
3. You have debt
Depending on what types of debt you have, it may not be forgiven upon death. If you obtained a loan with a co-signer, your death would cause your debt to transfer to whoever helped you qualify. Naming your co-signers as beneficiaries in a life insurance policy that covers your debts will protect your friends, family or loved ones from paying the remaining balances on your loans.
If you haven't read or been taught by me about loans, then that is my main focus... to have you completely debt free in 2 years or less! This especially goes for co-signed loans which I never recommend doing or to do in the future. When I was younger my father co-signed a loan for me and I wish he didn't. So many lessons learned from this and I do NOT want you to experience any relationship issues with such a loan.
4. Your loved ones would be financially burdened by funeral arrangements
The average cost of funeral arrangements is over $10,000–a cost that most families aren’t prepared to cover. Again, following my plan you will be debt free with a fully funded emergency fund in 24-36 months. Therefore you will be able to cover your own funeral costs. BUT if your current estate won’t cover your funeral costs, then a life insurance policy can be used to pay final expenses, including funeral or cremation costs, medical bills not covered by health insurance, estate administration fees and other unpaid obligation.
5. You own a business
Firstly, I do not recommend a partnership when it comes to owning a business.
"The only ship that doesn't sail is a partnership!"
Life insurance can be structured to fund a buy-sell agreement, which, in the case of an owner passing away, would ensure that co-owners have the option to buy the deceased owner’s stake at a previously agreed upon price. Essentially, this allows for the remaining owners to get the business and the deceased’s family to receive compensation.
In the case of a business partnership, owners can purchase insurance on each other’s lives. In the case of a business partner’s death, this allows the living partner to have enough money to buy the deceased partner’s interest and pay their share of the company’s obligations without having to resort to drastic actions.
Most people need term life insurance
If you’ve read the categories above, you can probably see why people need life insurance. The only exclusions from needing a life insurance policy is when you’re a young adult with no spouse, no debt. no dependents, or are self insured.
How much term life insurance do you need?
Getting life insurance may feel like a difficult task but it is worth it if you and your family need it. A common question is, how do you figure out the amount of coverage you need and how the cost fits into your budget?
I mentioned earlier but to put it simply: you need 10-12 times your current income on a 20-year term policy! You need an amount of term life insurance that will cover the difference between the amount of money your family will need to continue their quality of life and the amount of assets your family currently has. If you have children, you might also want to factor in future expenses that you planned on paying for.
The reason for a 20-year term policy is because life insurance is usually purchased when you have started a young family. Meaning that the kids will be grown and gone by the time the policy ends in 20-years, you will be completely debt free including the house following my plan, and you will become self-insured over that period of time!
I can help you figure out how much term life insurance you and your family should be spending for insurance, just reach out to me on my contact page: contact Mike. That way, you’ll know you’re purchasing a policy at a price that fits into your strategic wealth-building plan.
What prevents you from life insurance coverage?
While it’s true that some people avoid life insurance simply because they don’t want to deal with it, some people have health conditions that can make a life insurance policy prohibitively expensive.
Heart conditions, stroke, diabetes, osteoarthritis, and obesity are all health conditions that could cause life insurance premiums to rise by as much as 50%. This is because poorer health increases the likelihood of making a claim, meaning the insurance company is assuming more risk.
Once a person is terminally ill, or is diagnosed with an extremely high-risk health event like cancer, it’s much harder to secure a life insurance policy.
That’s why it’s important to get covered, and get covered soon: as health declines, coverage gets more expensive and harder to find.
The bottom line
Get term life insurance if you and your family need it! TODAY, get it today. While the idea of leaving your family behind can be unpleasant, knowing your family will be financially secure will give them more time to focus on the grieving process.