Money On Your Mind: The Sure Things In Life
As the saying goes, there are two sure things in life: death and taxes. Strangely enough, there is a bit of truth to that old adage. Last time around, I mentioned that I would discuss the different types of life insurance, its advantages and disadvantages, as well as what your beneficiaries really get when you die.
Generally there are two different types of life insurance: permanent and term insurance.
Term life insurance provides coverage of your life for a specified period of time, which could be 10 to 30 years. It has no cash value, so should you decide to discontinue coverage at any point, all of the money you invested in it would be gone for good. It is renewable after the coverage period ends, however as with ALL insurance, the older you get, the more expensive it becomes. Term insurance is always cheaper than Permanent, but if you don’t die within the time frame specified by the policy, the premium payments you make will be lost and the death benefit will no longer exist.
Permanent life insurance (also known as Whole Life or Universal Life) provides coverage for the life of the policy as long as you continue to pay the insurance premiums. It DOES accrue a cash value, so should you decide to discontinue coverage and “surrender” the policy, you would receive money back from your investment in the insurance. It is more expensive than Term for that reason. The policy will pay annual dividends at the insurance company’s internal rate (anywhere from 3.5% to as much as 7% or 8%) on the cash value of the policy, so the more cash value that exists, the bigger the dividend. When you die, your beneficiary will receive the death benefit PLUS the cash value and all dividends paid to the policy.
There are only a select set of situations where a person would realistically need life insurance coverage:
- if you have children or dependents
- if you are married
- if your family is financially dependent on you and would suffer a loss of income if you were to die
- if you are a wealthy, single individual and are seeking to put the insurance proceeds into a trust for charitable organizations (Rare)
- or if the insurance is part of a greater estate plan action
Generally, those are the circumstances. Single people don’t have anyone depending on them for their financial contribution, so they wouldn’t necessarily need insurance. If you are in one of the above situations and you want to get insurance coverage, here is my suggestion: do your research. The price you ultimately pay for your premiums is COMPLETELY dependent upon your current state of health. If you’re in pristine health, good for you because you’ll probably qualify for the best rate. Instead, if you’re a drinker/drug user, obese, a smoker (especially this) or have any major medical conditions that are proven to shorten your lifespan, then you may only qualify for standard or slightly better rates. And yes, there are some people that don’t qualify at all and are declined coverage. Most importantly, don’t let any insurance salespeople pressure you into getting coverage. Make sure they have your best interest at heart and are willing to take a close look at your current financial situation to help you determine whether insurance is the thing to do for you right now.
I would suggest Permanent insurance over Term insurance any day. But if money is a concern, there are Term policies that are capable of being converted into Permanent insurance without having to do any additional underwriting (where they get your medical history by speaking with your doctors and completing an insurance exam). So pay a cheaper premium now and get longer and more encompassing coverage later.
So, what do your beneficiaries get when you die? Well, if you have any life insurance policies, your beneficiaries would receive the death benefit (the guaranteed payment from your policy upon your death). Believe it or not, our failing Social Security system will pay your spouse or children a whopping $255 death benefit! Joy. Your loved ones may also be eligible for survivor benefits, which would be 75-100% of your Social Security retirement benefit. Of course, your benefit is dependent upon your work history and how much you made.
So there you have it! The moral of this chatter is if you have people that depend on your financially, you should have life insurance. Bottom line. Death isn’t an easy topic to broach, but it is a necessity to ensure that your family will suffer no hardship. Next time, we will take a step away from the macabre discussion of death and take on life in its fullest by talking about making money and creating your own business. What do you need to do to set everything up? What documents do you need and what is the process? What KIND of company do I need to set up? All that and more coming up in the next issue. 😀