Life Insurance: How, When & What to Purchase

Most people have at least one financial dependent, whether it be a spouse, children, or loved one. What would happen to your family if you were to suddenly pass away? This is where life insurance is an incredibly useful tool and can be a blessing to your loved ones.

There are two basic types of life insurance: permanent life (also called whole life or universal life) and term life. So what’s the difference between these two?

Permanent Life - Permanent life insurance provides coverage that lasts a lifetime and it also has a savings or investment tool built in. As a result, the premiums are much higher than term life.

Term Life - Term life insurance provides coverage for a specific “term” of time (10 years, 20 years, even 30 years for example). The premiums are much lower, so you can get a higher amount of coverage for a lower cost.

Life Insurance in Early Years

When you’re just starting out in life - married, maybe with a couple of kids, life insurance is a must. To get the best bang for your buck, term life insurance is the best route. There is a larger amount of coverage available for a lower premium, even at a 30 year term. Think of the financial goals you can reach in 30 years; you can pay off your student loans and any debt you owe, purchase a home with a 15-year mortgage and pay it off, and raise self-sufficient kids who move out of the house! Not to mention you can start investing in pre-tax retirement accounts and Roth IRAs. Once 30 years roll by, you’ll be financially stable and self-insured.

Life Insurance in Later Years

Let’s say you’re in your later years. The kids are grown and you are debt-free. If you were to pass away, will there be someone who will suffer financially? If not, you can probably consider yourself self-insured - meaning you don't need a life insurance policy. The number one job of life insurance is to replace income when the insured individual passes away.

An Investment

If you like the idea of the permanent life policy having an investment tool wrapped up inside of it, I would ask you to reconsider. The returns within a cash value policy will be very small compared to the investment returns of good mutual funds. Fees will also be much higher on a whole life policy than on mutual funds. Bottom line: you will be much better off by investing your money into mutual funds, rather than cash value life insurance. There are far more profitable and effective ways to invest your money outside of a permanent life policy. There may be a time and place where permanent life insurance makes sense, but for the average person, term life insurance is the best option.

Life insurance can be a useful tool if used how it’s intended. Whether you are a young family starting out or are still working towards your financial goals in your later years, it's best purchase a term life insurance policy. You will be able to use the money you save on the lower premiums to reach other saving, investing, and debt payoff goals. If you are already in great financial condition, you might not need life insurance at all.

If you want to discuss your life insurance needs further, please reach out! I would love the opportunity to meet with you and add value to your financial future.