Buying life insurance is something that we love to hate, but like making a will it is something we know we should do.
Why don’t we get life insurance when we know we should? It could be we’re in self denial about our mortality, it’s not a priority, or we’re stuck in paralyzis of confusing information.
Buying life insurance is an act of love toward your family. You can rest assured that your family and estate are taken care of. You love your family, now show it with action.
No matter what your reason for not buying life insurance in the past, I hope these frequently asked question about life insurance will educate and encourage you move forward.
Life Insurance FAQ
Why do I need life insurance? I’m glad you asked. If you understand the why then the rest will fall into place. Life insurance isn’t about making you rich or leaving an inheritance (unless you’re super rich).
It is about replacing your income or the income of your spouse should death occur. If you’re living the smart financial principals I teach on this site, you’ll be rich in 20-30 years and won’t need the insurance money should you or your spouse pass away. In essence you’ll be self insured.
If you’re still not convinced about your need for life insurance read a few of these real stories about their experience with or without life insurance.
Should I buy Term or Whole Life? The verdict is almost unanimous among personal finance experts that Term Life is the better product. I agree. Why? Term life is more affordable and fulfills the purpose of insurance.
Term Life Basics- A policy is for a set amount of time, usually 20 or 30 years at a low monthly rate (seriously it’s cheap for those who qualify). Term life has no investing vehicle. If a death occurs, the policy pays out in full.
Whole Life Basics- Also known as cash value, requires a higher monthly premium [than term] and a portion of that is invested for a small return. Upon death the insurance portion is paid upon death. The investment built up isn’t paid out to the family, but can be taken out any time before death (depends on policy).
My friend, Steve, did more math to compare Term vs. Whole Life that I recommend checking out.
I’m single, do I need life insurance?
If you don’t have any dependents, then you won’t necessarily need life insurance. BUT, if anyone has co-signed a loan for you and your estate can’t cover the costs, then go ahead and get insurance.
Also, consider that every year the premiums increase on each birthday. If you are in early 20’s and unmarried, in good health, and able to afford it– why not go ahead and get cheap rates while you are healthy? If you are diagnosed with a a medical condition later, it is much more difficult to get life insurance.
How much life insurance should I buy? [common sense answer] A general rule of thumb is 8-10x your annual income. I’m not selling insurance here, but I’d rather overinsure than under insure in this category. Remember the purpose of insurance is income replacement for you or your spouse.
So how much are we talking? If you take home $3,000 a month after taxes, you’ll need at least $288,000 for 8x and $360,000 for 10x. For term life, these amounts are relatively inexpensive.
How much life insurance should I buy? [nerd answer] Ok so if you want to get more complicated there are handy calculators to help you decide. They take into account debt, mortgage, and other issues. Personally, I find these calculators confusing as you don’t know the variables and are really just guessing. Use a few calculators and go with the bigger number as long as you can afford it.
My spouse works from home, do we need to insure her? A resounding YES! Your spouse has a huge economic impact on your family. What would it cost to pay for childcare, cooking, cleaning, errands, and the millions of taks a stay at home spouse does? In short- a fortune.
You should have a policy on the stay at home spouse. The amount would be in proportion to the economic impact on the family if they passed and you still had to continue working. A $250,000 or $500,000 policy would be a good place to start and then move up from there. Remember term life policies are cheap if you’re in good health.
Can I afford life insurance? Yes! term life insurance is fairly inexpensive. It really is. Let’s look at a 34 year old male in good health for a $500,000 policy.
Compare a few quotes today.
1. Life Insurance by Jeff– an independent broker and CFP.
2. Zander Insurance Group– Larger independent broker endorsed by Dave Ramsey.
3. Go to you own insurance carrier or local independent insurance broker and get a quote. In most cases an independent broker can get the best rates on term insurance.
*These are NOT affiliate links.
My health is bad, can I still be covered? Yes, but you’re going to pay for coverage. Your best bet is to go to an individual broker to have them shop around for a policy with your specific medical condition.
I’m over 50, do I still need Life Insurance?
This is where it gets tricky. It depends on your financial situation (debt, savings, nest egg amount, etc) If you have a question, consult your financial planner.
The price will go up significantly as you get older. Let’s look at a 51 year old male in good health for a $500,000 policy to compare to the above example of 34 male.
What Are You Waiting for?
It’s time to take action. If you’re still reading this and don’t have life insurance in place, something is missing from your financial plan. The time to act is now. Do it for your family.
If you still have questions there are over 100 personal finance bloggers focusing on life insurance this week. Read about the Life Insurance Movement and follow the Twitter hashtag #LifeAware
What other questions do you have about life insurance?