Ready to buy term life insurance coverage? You will find this article quite useful…
Growing up is hard to do, and it’s true at every age and stage of life. We reach various milestones during different decades – career and business success, a mortgage, a marriage, starting a family, building an estate, and a legacy. With each attainment comes the realization that we have more responsibility, and people that count on us. That strikes a bit of fear in our hearts but also moves us to action to make smart financial moves to protect all those things we’ve worked so hard to achieve.
Part of an indispensable part of building that solid financial plan includes owning life insurance. The need for life insurance is not something many of us like to think about but just about everyone needs it, and statistically too few Americans own it. If you are on the fence and considering making that all-important grown-up decision to get life insurance coverage (whether you are 30 or 50 years old), check out our list below to help you consider the benefits of the most popular and cheapest type – term life insurance coverage.
When you purchase a 20, or 30-year term life insurance policy, you are providing coverage during the most important lifespan of your family’s financial need. That time of your life in which you are building careers, growing your family, and your nest egg. Your survivors/beneficiaries will be able to replace your income and maintain the quality of life you provide with the payout from a hefty term life policy. Parents specifically name each other in the policies, as well as the children as beneficiaries, so that those named survivors will receive the tax-free death benefit.
The value of stability cannot be underestimated during a time of loss. With the payout provided by a substantial term life policy, your family will be able to pay off the mortgage and remain in their home even after your death. This can come in a lump sum or by way of specialized types of “decreasing” term life insurance that gradually go down in value as the policy matures, to match the decreasing amount of your mortgage.
One of the biggest responsibilities a parent has is to provide their children with a quality education. The cost of higher education in this country has never been higher as are the stakes of not having a degree and not being able to compete in a global economy. You owe it to your kids to put them through college with as little debt as possible, even if tuition loans are a stark reality for most. Yes, there are other ways to save money for your child’s education with 529 College Savings Plans, a/k/a “qualified tuition plans,” but the plans generally don’t build up enough value to cover the full cost of tuition, especially at out-of-state or private colleges. It may not have occurred to you that a term life insurance coverage would be a viable option if you were no longer around. An insurance payout is like having money in the bank for the kids and can provide a financial buffer to help you sleep at night. The tax-free insurance proceeds can also pay off any student loans to keep your child out of future debt.
In a dual-income household, which makes up most of the American families these days, both spouses shoulder the financial responsibility and make invaluable contributions. A paycheck has tangible value but often the other spouse’s contribution is not necessarily monetary. The passing of the spouse who provides childcare and domestic tasks in the home leaves a huge void in the family structure. Not only would that income need replacing, but so would the duties essential to the family’s lifestyle. The surviving spouse may need to hire help for domestic household tasks, not to mention paying for the care of young children.
Your death does not eliminate or forgive your debt; if you spent it someone is going to have to pay it back. Leaving your survivors in a financial black hole is the last thing with which you want to trap them. A term life insurance coverage is just the rescue they will need to satisfy what can otherwise be a crushing burden. Do the math and figure out how much you owe—add up the mortgage payments, car loans, credit cards, and any other loans or liens— to figure out how much life insurance you need to satisfy all that debt. This is only part of the coverage amount, a/k/a “face value” of a policy that will be needed to take the pressure off your loved ones. Think of it as providing your family with “new income” to cover living expenses.
There can be nothing more catastrophic to a small business than the death of one of the owners/partners. Putting aside the personal loss, the practical or financial loss of a key asset can throw the company into turmoil and threaten its survival. That is why business co-owners buy life insurance policies called “buy-sell agreements” in case any of them dies. These legal contracts are usually made up of term life policies, in which the payout can provide operating cash to carry the company into transition, as well as help the surviving owners buy a late partner’s share from the heirs. Acting almost as business pre-nuptials, this use of life insurance is a critical part of a business succession planning process to secure the company’s future.
A great advantage of life insurance is that proceeds receive a federal income-tax-free benefit when they are paid to your beneficiary. The important thing to remember is to make sure that the proceeds are assigned to a named beneficiary in the policy, not to your estate. If the payout goes into your estate it will be included as part of your taxable estate for federal tax purposes.
Once you have taken care of those closest to you, you might want to consider the greater good in leaving a legacy and impact after your death. Assigning a term life insurance policy to benefit your favorite charity or nonprofit organization as the beneficiary can make a difference to the world, or just to your community. It’s not only good for mankind but gifting a life insurance policy can greatly reduce the donor’s taxable estate, saving thousands of dollars in estate taxes for high-income taxpayers. That gift can also result in a current tax deduction of the policy’s fair market value, and meantime, the charity is the happy beneficiary of the entire face amount of the policy at the death of the insured. Win-win for all involved.
Dying is not cheap. The cost of a funeral and burial can run into the tens of thousands of dollars, and unless pre-arrangements have been made or paid for (something most people don’t want to think about or plan that far ahead), that financial burden will fall on your family, on top of the emotional burden they will suffer as well. Setting funds aside to cover those “final expenses” is not only smart business, it is the right thing to do, the humanitarian solution for your loved ones. Having a term life insurance policy in place is the best solution to take care of this reality of life, giving you and your beneficiaries more of a guarantee that the inevitable will be taken care of seamlessly someday.
Term life insurance is a type of life insurance that lasts for a specific period of time—from 5 to 30 years. The idea is that you buy it and pay the premiums for the entire length of coverage whether you need it or not. But a term life policy with a “conversion” option to a permanent or “cash value” policy is an attractive option. This type of convertible policy costs a little more but maybe worth it in the long run if you want to look at life insurance as an investment or savings account down the road. The choices are Whole Life Insurance, Universal Life, Indexed Universal Life, and others, which build up cash value over time and last for your entire life, even beyond age 100. It is a costlier option that can be considered when you’re older and more financially capable of paying the higher premiums.
If we can add an 11th and perhaps one of the best reasons to buy term life insurance coverage is the low cost of that coverage. Term life has never been cheaper and much more affordable than most people think. In fact, one of the main excuses people consistently give for not buying life insurance is that they think it’s too expensive. Nothing could be further from the truth. The reality is that the monthly premium cost is probably less than the price of an Uber ride. And, the younger and healthier you are, the lower your premiums will be. Unless you are a smoker or have a health condition, you could find coverage for dollars a day. Do a quick, no-obligation quote now to see compare the best, affordable term life policies. Even non-medical term life policies have come way down in price and many are now comparable to the cost of fully underwritten policies. Simplified or instant issue policies are a great option for young, healthy applicants, often giving approval in hours or days.
Those in the earlier stages of adulthood are more likely to put off buying a term life insurance policy because they don’t think they need it (invincibility is a strong emotion at a young age). Ironically that is the best time to cash in on the cheapest rates because as we said young, healthy applicants are attractive to life insurance companies since they are statistically the least likely to die and cost them a claim.
But the best determining factors are what we like to call “Life Stages.” What stage are you in— married with children, homeowner, business owner, or getting ready to retire? The earlier stages are when you will need the most significant coverage for the longest period of time.
The face amount, or “death benefit” of an insurance policy, a/k/a the payout amount your beneficiary(s) will receive should be substantial enough to replace the after-tax income you would have earned had you lived a full life. Simply put, the insurance policy replaces the income you never earned until retirement because of your premature death.
The properly calculated amount of insurance – $250,000, $500,000, $1 million, or $3 million will give your family the lifestyle that your income provided. But don’t take our word for it… let a licensed professional guide you to the policy that is best for you. Do your research and have all your questions and medical information ready in preparation for the application process. It is an important and mature decision to make that hopefully, your family won’t need to cash in on any time soon. But making it will undoubtedly help you all sleep better tonight.