While this Title phrase may sound dramatic, it very simply sums up the very purpose of Life Insurance and what it will do for your family. Life Insurance clearly does not replace your goal of building your financial security through investments, but should be viewed as a starting point in that effort. Years ago, when I was first introduced to the Financial Planning Pyramid, (a pyramid graphic depicting the hierarchy of your financial priorities in building financial security) the very base of that Pyramid was labeled your “Life and Disability Insurance”. The logical reasoning for this was that you first have to protect what you have, and build from there! Your family’s Financial Future will be seriously impeded, if not destroyed, if one of the adult members of the household were to die unexpectedly.
Once you realize the importance of having this protection, you then have to decide how much is appropriate, and just as important, affordable. In today’s world the ideal is having a policy large enough to conservatively replace the major breadwinner’s financial contribution to the family. And, let’s not forget about a non working spouse’s financial contribution to the household which has been conservatively estimated at @$35,000 per year. The amount of mortgage debt, and the cost of the children(s) college education are other items considered vital to the amount of coverage.
Among the two types of Life Insurance available (temporary or permanent) the least expensive is Term (temporary) coverage. When your children are minors (up to age 18) and/or the mortgage debt is large (for new homeowners), Term is an economical tool to provide the larger protection you need during these years. However, 98% of Term is not in force when it’s needed, as most live through the term, allow it to lapse, or cancel it when times are tight. Term is also not as available in your later years as the cheaper premiums do not offset the mortality risk to the insurance companies. Then you will need to consider a permanent policy (Whole Life, Universal or Variable Universal). If possible you want to buy this as young, and inexpensive as possible.
When weighing the amount needed against the amount affordable, I always start with the premise that something is better than nothing! You should consider what the family can afford, on a monthly basis, and work from there. If there is Group Life coverage available at work it is an excellent option to augment that which you can afford personally. But, if you leave that job, in most cases you can’t take it with you, and it is usually not more than 1 or 2 X salary. So it alone is not enough, particularly in California, to provide for your family’s security.
I have come across some who do not “believe” they need Life Insurance because they have plenty of assets to protect the family should a parent die. This may well be, but if one has the assets to protect their family, and can easily afford to provide the means for the funeral for one of such status, wouldn’t it be a better use of those assets to provide a Life Insurance benefit to cover the funeral expenses (at pennies on the dollar), than require the family to use them for their farewell services. If your finances are sufficient, consider buying, as soon as possible, a small permanent policy to bury you, and make up the balance of what you need with term coverage while your need is greater (see above-young children and mortgage).
If you don’t have dependents, you do not need Life Insurance (unless you want to leave something for your family to bury you). However, if you are single, you should look at Long Term Disability Insurance, and if you are age 50+ you need to consider Long Term Care Insurance, as you will be only one responsible for yourself! Your first step should be to talk to an insurance professional, to see what is affordable and appropriate for yourself, and your family. Do not let excuses and discomfort dissuade you from obtaining this vital protection for your family. The longer you wait the more expensive it becomes!
Corrin Trowbridge is a Farmers Insurance agent and can be reached at 650-FARMERS, or ctrowbridge@farmeragent.com. For a free quote contact us on our website: http://www.farmersagent.com/ctrowbridge
4/9/2012:
What is the best kind of Life Insurance?
As in many areas of insurance, the answer to this question is: “It depends!”. There are a number of factors that go into your need for, and cost of Life Insurance. First, Life Insurance is used mainly as protection for others from the financial loss that would come with the death of the insured. While no one likes to dwell on the death of family, or other important people in your life, it is a reality and one you should takes steps to lessen the risk of financial loss from it. Life Insurance can also be used to settle an estate, by offsetting taxes, or create a legacy if the beneficiary is a non profit.
As mentoned above, there are two primary types of Life Insurance : Term, or temporary, and Permanent. The main differences are that Term is only for a term of years, and only pays a death benefit, while Permanent is with you until you die, and builds a cash value in your “seperate account’. There are different types of permanent insurance that treat that cash value differenty and make it more or less expensive.
The variety of features make these two differnt policies better for different situations, but truth be told, if it is econmically affordable, the best choice would be a combination of the two, a smaller permanent policy (bought as soon as possible as it only gets mroe expensive with age), and a term policy (to make up the difference with what you need at your highest need). That is because the permanent assures there will be something available to take care of your final expenses, and term allows you to buy to the larger amounts one needs to truly protect their families financial future when needed. If that is not financially realistic then one has to make a trade off, and assume the risks that come without having one, or the other.
Your need for life insurance would look like a bell curve if it were charted on a graph. Its starts out small when you are young, , but then you get married, buy a house, have children and it rises to a peak, gradually reducing when the children grow older and leave the household, and the mortgage gets paid off. That is one of the reasons buying a small permanent policy as soon as possible, preferably before age 25, is a good idea as it keeps that cost to a minimum for your life time!
One of my favorite sayings is: We don’t plan to fail, we fail to plan!
In conclusion: I will repeat myself. “Something is better than nothing,” so don’t think that if you can’t afford enough to fully protect those you want to, its a basis for doing nothing!
