Life insurance markets used to be fairly simply. Today, however, insurance companies offer a wide range of products and policies tailored to individual needs and financial goals. Term life is a traditional life insurance product that has a defined period of validity — or term — during which a death benefit may be paid.
On the other hand, whole life policies generally refer to a group of products that pay a permanent death benefit, but also accrue cash value over time.
Whole life policies may earn interest, be diversified in portfolios, and have loan and early withdrawal options. They are often considered an investment product and a life insurance policy in one. Typically, they cost more than common term insurance and owners may choose to pay in additional funds up to a certain cap.
Some financial planners compare whole life policies to traditional savings accounts with restrictions on withdrawals, money markets, or long-term CDs. While whole life policies earn interest, they do so at much lower rates than true investment products.
If you’re looking for a high rate of return, then a whole life policy would not be the best investment option. However, if you prefer long-term stability with a minimal return plus the added protection of a secure death benefit, then your whole life insurance policy may be a good choice.
If your primary concern is passing the investment on to beneficiaries, then a whole life policy has several advantages over savings accounts:
Whether you’re starting a policy on payments, or have a sum to invest with beneficiaries in mind, then whole life can provide a moderate investment option against traditional savings and CDs.
Again, your primary goal will decide whether whole life can provide an effective investment for your financial needs. Many experts decry whole life as a true investment because of the high costs and lack of liquidity. However, if you’re young and have a steady career income, leveraging a whole life policy for retirement can be an effective strategy that pays off.
It can take twenty years for returns in a whole life policy to offset the front-end costs, so a person purchasing a policy at 35 could potentially reap the benefits during early retirement years. In such a circumstance, the policy could be considered a successful investment vehicle.
Whole life may also provide an option when the owner is already making maximum contributions to other retirement investments like an IRA or 401(k). On the down side, however, life insurance can have tax pitfalls and be costly without permanent income.
Most financial planners and experts agree on one thing in relation to whole life plans: They can be a good investment when combined with other financial products.
Solid financial planning begins with incorporating a wide range of products and investments in your portfolio. When whole life policies are added to stocks, retirement accounts, savings, and other investments, they account for the strongest long-term strategy and still provide a reliable death benefit.
If you’re considering a whole life policy as an investment strategy, do your research and speak to an agent. Like any financial product, there is no simple answer and whether it turns out to be a good investment depends on your individual needs and situation.
If you need an insurance professional who knows the industry, listens to your needs and works hard for you, Chris is your man.
We have trusted Chris with all our insurance needs for several years. He always listens and understands our needs completely and then works hard to design a policy that best fits our needs. He is very personable and easy to work with.
Chris brings expert advice and honesty to every project we work on. He gets things done in a timely manner and does an excellent job following up.
I found Chris when looking for life insurance brokers. I knew exactly what I wanted and told Chris and he was able to deliver without trying to upsell me on something else. It was very straightforward and exactly how I hoped it would be. I would definitely recommend him for anyone in a similar scenario.
Chris provided (and continues to provide) excellent service and support for our insurance needs. He is very responsive, knowledgeable and provides specific and efficient solutions to our insurance needs. I highly recommend Chris!
It’s truly appalling that so many people don’t consider term life insurance to be very important.
According to lifehappens.org, typical American families spend more money per month an Apple iPhone and Starbucks than they do protecting the important people in their lives with life insurance. Most don't realize that for a 35 year old male who's in good health, monthly cost for $1M of 20 year level term life insurance is less than the payment on an iPhone with AT&T(depending on the model financed, of course)
Life insurance doesn’t seem important until it becomes necessary, and then it's too late--it's like asking an insurance company to buy fire insurance when there's smoke coming from the front door! That’s because you can’t buy life insurance after the fact. What’s almost ironic is that life insurance is generally one of the least expensive types of coverage you can have, at least when you buy term life insurance. And though most people don’t give it much thought, it’s actually the most necessary.
We usually tend to think of life insurance in terms of providing a death benefit that will help support our loved ones after we die. That’s one purpose, and maybe even the most important.
But there are a few more:
Though it’s possible to do a relatively inexpensive funeral, you can’t do one for free! Even a modest funeral will cost several thousand dollars. If you have no life insurance, and especially if you have a few liquid assets, this could create a deep hole for your loved ones in the event of your death.
Since death is frequently preceded by an extended period of medical treatments, that can result in out-of-pocket expenses. For example, if your health insurance policy has a $4,000 deductible, and a maximum out-of-pocket of $6,500, your family could be stuck with those bills after your death.This is even more true in an age of Obamacare, where health insurance typically includes high deductibles and out-of-pocket maximums in order to make the coverage more affordable. But if you have no health insurance at all – and millions don’t – your family could be facing tens of thousand dollars in medical bills. Life insurance can prevent this.
Any loans cosigned by a family member that are outstanding at the time of your death will become obligations to your family. And even if a family member didn’t cosign for it but want to keep the asset, like car or house, those loans also become the obligation of the family. But of course, they will have to deal with those obligations without your income. This can stretch an already limited household income to the breaking point.Your life insurance should include a large enough death benefit to not only cover final expenses and outstanding medical costs, but also enough to pay for outstanding debts, particularly car loans and credit cards. If you really want to provide for your family, your death benefit will be high enough to pay off the mortgage on the family home.
After your death, your loved ones will be traumatized. This can lead to reduced income, due to missing work. It could also increase health-care costs, as the family experiences more frequent illness, as well as emotional trauma. A life insurance policy can help to offset these expenses, giving your family extra money to adjust to life without you.
Up to this point we’ve been focusing on the need to have life insurance on your own life for the benefit of your loved ones. But you should also strongly consider having policies on each of them. Any of the financial situations listed above that your family can face in the event of your death, can also effect you should one of them die.So to answer the question, who needs life insurance?, the answer is everyone! That includes newlyweds, stay-at-home-parents and everyone in your family.It’s often felt that single people have no need for life insurance since they have no dependents. But if you are single, and you have family – parents, siblings, and even nieces and nephews – you should still have some life insurance.At a minimum, you should have enough to cover final expenses, medical costs that anyone has paid on your behalf, and especially any loans where a family member has cosigned in order for you to get a loan.Cosigned loans don’t disappear because the primary borrower dies. The lender can still go after your cosigner. Having life insurance will prevent that outcome, and keep your family member from being pursued for full payment of the loan.
There are a number of reasons why people don’t have life insurance, but here are three of the more common ones:
If your budget is tightly stretched, it can be legitimately difficult to find money to pay for a life insurance premium. However, that should make you realize even more that if your household finances are tight while everyone is alive and well, it will be infinitely worse should one of you die.
In addition, there is a term life insurance policy that will fit virtually every budget. It’s worth cutting an expense or two to make room for this all important financial service.
Many employers do provide life insurance for their employees, but it usually caps out at a relatively low level, generally no more than $50,000. At today’s cost levels, that’s a very minimal policy.
And then there is also the problem that you could lose your life insurance should you lose your job. And when that happens, it may not be so easy to find affordable life insurance, particularly with no job income.
Some people don’t like to even talk about life insurance because it’s like betting on your own death. They may even reason that just the fact that you are taking a life insurance policy increases the chance of your death.
But the reality is that you will die someday, whether or not you have life insurance. And the only fair course of action is to have a policy in place, for the benefit of your family members.
Cost is a significant factor in making any purchase, including financial services like life insurance. But once you recognize the absolute necessity of having life insurance coverage, it’s just a matter of finding an affordable policy.
The best choice is term life insurance. It’s not just less expensive than investment type policies, like whole life insurance, but much less expensive. It’s possible to purchase a term life insurance policy for just 10% of what it would cost for a whole life insurance policy with the same death benefit.
That means that the $200,000 policy that will cost $3,000 per year for whole life, can be had for around $300 with a term life insurance policy.
The difference between the two premiums is that whole life includes an investment provision. The additional premium that you pay goes into the cash value of your policy, as well as payment of the many fees that are associated with whole life policies.
Term life insurance, on the other hand, is pure life insurance. If you buy a term policy, and invest the difference in premiums (between term and whole life) in an index fund, you will have better investment returns than you would by “investing” through a whole life insurance policy.
Term policies also provide you with the ability to match coverage with need. For example, your greatest need for life insurance is when your children are very young. Let’s say that you have preschool age children; you can take a 20 year term life insurance policy that will cover your family until your kids are adults. Once your kids are grown, you won’t need as much coverage.
You can do the same thing with your mortgage – match your life insurance with the outstanding balance on the loan.
The best way to shop for a term life insurance policy is through an online life insurance site like my term insurance site here. The advantage is that you can provide the information once, and then have the insurance companies come to you with quotes. This will give you the advantage of being able to make side-by-side comparisons, so that you can select the best policy for your needs at the lowest possible price.
If you’ve been delaying getting life insurance – or if you know that you don’t have enough coverage – start shopping today. Life insurance gets more expensive as you get older, which means now is the best time to get a policy. Go to the quote engine on the right side on this page and run private, instant term insurance policy options so you can see how much cheaper it is to buy term insurance than it is to pay for your iPhone!
It’s no secret that insurance agents want to sell you the most life insurance at the earliest age possible. Get that out of the way right now. And, I’m in the insurance business and earn my livelihood by placing life insurance policies for families and businesses. It’s an honorable profession and it’s been my calling for over 30 years at this point. I get no better feeling than when I help a young family put together a really solid life insurance plan that makes sense for them based on their current needs. I know that when and if tragedy strikes the family, either by accident or by sickness, I will be the only service provider who will actually be bringing money to the family, not taking money from the family in the form of fees–probate, executor, trustee fees, estate settlement costs, not to mention final expenses like funeral costs. The life insurance professional holds a unique spot in the estate planning team, and it’s a very important one. But, really, how much life insurance do I need?
Not all people share my view of the importance of my role as insurance professional, though. If you read this blog post by Kristen Wong at LifeHacker, you’ll see some pretty contentious comments by people of varied background weighing in on this subject with serious emotion. Read the comments and replies and you’ll quickly realize that many of the commenters seem to have endured some pretty bad, unprofessional experiences with life insurance agents. No wonder the insurance industry’s reputation is somewhat tarnished. If you were to only read these comments, you’d wonder why life insurance was ever invented!
So, I’m going to give you what I think is a pretty good, objective, common sense way to think about your own life insurance needs. First, THERE IS NO WRONG ANSWER! We are all unique and have different needs! Why is this so difficult to understand. Lawyers talk about “fact patterns” when trying to brief or summarize cases so they can come up with a logical, methodical way to solve legal problems. Most cases have somewhat similar “fact patterns” so you can see that people have actually gone through this stuff before us. Differences occur in specific numbers and emotion responses to statements and presentations. Relationships come into play when you are talking with a life insurance agent, for example. Either you trust him/her or you don’t. That feeling is established in the first minute after initial contact, either by phone or in person. If you don’t like or trust the agent, then you won’t like or trust his/her advice. It’s that simple. So, if you don’t like the person trying to help figure out the best approach for your life insurance program, then obviously, you won’t like the advice. Not rocket science here.
Ok, so how do you actually figure out if you even need life insurance? Well, if you’re reading this post, then something in the back of your mind is telling you that you probably do need life insurance of some kind to protect your family from financial catastrophe in case something bad happens. That’s a perfectly appropriate first step–gather some information to see if you follow a certain “fact pattern”, remember that term? Generally speaking, if you have a young family who depends on you to provide money so they can eat, then you probably could use some life insurance just in case you go mountain biking and never come back.
Life insurance is nothing more than a block of capital that replaces a breadwinner when that person is gone. The capital is invested to generate income, which represents the income of the breadwinner. There are nuances to this analogy, but this is the general idea. We can get really complicated and run inflation analyses, etc, but the block of capital will still end up being bigger than most people think at first. If you need to replace $100,000 of after-tax income, you would need to divide that number by what you think you would be able to earn in an investment portfolio. Let’s say 5% for this example. This comes out to $2 Million. That’s a huge number if you were to win the lottery, but not if you are 35 years old with a non-working spouse and two young kids at home. As the saying goes, “$2Million just doesn’t go as far as it used to”… If your spouse needs to go back to work, then you have daycare expenses and possibly further educational expenses, not to mention on-going household expenses that continue after you’re gone. You can see where this is going, can’t you?
Now that you’ve identified that you need life insurance and that you could use a couple million dollars worth, what’s next? I would recommend that you read this recent NY Times article which offers pretty good, solid ideas on the types of life insurance and how to structure beneficiaries. These will be future topics here because after 30 years, I’ve seen many situations and mistakes made on proper structure of policies. This article is a good start. Once you’ve done some research, go to my life insurance quote engine on this page and run some numbers for yourself. Don’t take my word for how cheap $2Million of term life insurance can be. See your own numbers and TAKE ACTION to protect your loved ones. The worst thing you can do is to do all of this research and not do anything! Most people just move on to a new web site in search of the “best deal”. There is no “best deal” in life insurance. The best deal is the policy that pays a benefit to your family when you’re gone, plain and simple! Do you think that your spouse will care if you saved $3 a month from company A vs company B? no he/she won’t! Your spouse will never complain about how much the life insurance costs or if there’s too much life insurance benefit. The only complaint will be if there is NO life insurance, or not enough. The choice is yours.