Shh, Let’s Not Talk About “That. . .”
Life Insurance. Nobody likes to talk about life insurance. It reminds us of our mortality and that we won’t always be around for our loved ones. We look at it from the perspective of the loss, not the silver lining. But why not look at it in a better light? Look at life insurance as a plan so your LIFE doesn’t simply end when your body does. Look at it as actual “life” insurance, not death insurance.
It is something that ensures the life that you had planned for you and your family can continue on. Even if someone is removed from the story too early, the journey doesn’t have to end. The main benefit of life insurance, is for your loved ones, because they ARE your life. Life Insurance is a blessing to keep them moving forward with the dreams you had together. They are able to reach the goals and plans you shared. It helps shield them a little bit as they learn to live in a world without you.
Your Policy, Your Friend
While the main reason for life insurance is the legacy you leave behind when you depart this world; there are benefits while you are still alive as well! So it truly is a holistic and comprehensive part of your LIFE PLAN! Not just something morbid to have to deal with grudgingly. Life Insurance is here to protect you if you die too soon and if you live too long. It can be part of your strategy to have tax advantaged funds available later in life to supplement retirement. Or plan for Long Term Care and not have to deplete your other savings – there are vehicles for that too.
Maybe right now, you don’t see a need for life insurance. You’re young and/or don’t have children or a spouse that relies on your income. Or you plan to get insurance “later” when the need arises and it makes more sense in your overall plan. If that is you, GREAT! This information can help understand what life insurance is and how it works! You’ll be ready and know what you are looking for when it is time to get a policy for yourself.
So let’s continue with open arms, embracing the idea of your forever friend, your life insurance policy!
The “Funeral Crisis” We See Today
Just look on a fundraising site like GoFundMe. and search “funerals.” MILLIONS of families today are trying to get help to cover the immediate needs of the funeral expenses. When I wrote this article, there were 2,565,472 results for “funeral.” That’s funeral expenses only, not to mention what the family is going to face financially over the next five, ten, twenty years. Surviving spouses and parents having to figure out how to live without the love of their life. But also during that grieving process, they have to figure out how to make double the income in half the human capability of time. Couples that lost not only the person who made their world go round, but the other value that person provided in household chores, grocery shopping, and pet sitting.
There are too many stories of clients we have sat down with and heard the financial anguish they went thru for not having insurance in place when tragedy stuck their family. Homes are lost to evictions or foreclosures, families drowning in massive debt, uprooting children from friends and community. All this on top of the emotional stress the family is going through as well.
The need for life insurance is there, but so many of us don’t purchase it. If you weren’t aware, dying and taxes are the only guarantees in life – so pretty much 100% of us are going to die someday. What happens if we die sooner than we would like and leave people behind and plans unfinished? I look at the bare-bones life policy a lot like car insurance, it’s great if you NEVER need to use it, but you have it anyway because the cost of NOT having it is too great.
So Why Don’t More Women Buy Life Insurance?
The top reasons women noted for not having a life insurance policy on themselves:
- They thought it would be too expensive
- Perhaps they did not see the need to ensure themselves because they were not the primary breadwinner of the home
- Or, They didn’t think insurance is important for them
Now, before we can analyze these reasons and decide if they are an educated decision or false assumption, we must first understand what life insurance is. We’ll look at these reasons again in the next chapter!
Life Insurance 101
There are several types of life insurance and thousands of companies who sell it. Navigating all of these options can be daunting and makes the process of even looking at getting life insurance something people tend to avoid all together. Let me break it down in very simple terms. For the sake of your time, I will only highlight the main characteristics and concepts for the types of insurance you would typically be looking at.
The way I explain it to my clients: there are basically three types of life insurance – with varying options inside of each. Each has it’s purpose and specific solution it provides.
- Final (funeral) Expense – This is the money that you need almost immediately to cover the expenses of having to deal with the aftermath of finding out your loved one has passed.
- Term Insurance – This policy is designed to protect the bulk of your responsibilities and life plans for a specified period of time.
- Permanent Insurance – This covers you until the day you die or you turn 102 years old, in which case they give you your money back as a bonus for living so long!
We can address Long Term Care, college expenses, chronic illness, cash flow needs, and more in each of these plans. There really are endless options to how you want to build your insurance plan and how you can make sure all your needs and desires are met.
Final Expense policies are typically a smaller policy ($5,000-50,000) and have very good chance of being approved no matter what age you are at the time of issue. Proceeds are paid out to the beneficiary within 24 to 48 hours of receiving the death certificate. Immediate expenses, like the death certificate you have to order from the hospital, to the transportation cost you need to pay to move the body from the hospital to the funeral home, and the expenses associated with the ceremony/burial/cremation, etc.
Also, with some of these programs like Everest Funeral Concierge, you have a team that helps take care of all of the final arrangements according to your loved ones desires, by negotiating and making the calls for you. So if you have a $15,000 policy and they are able to lower the funeral costs, then your family gets more to use for the next couple months of mortgage payments, or the tuition for the kids soccer club dues, or whatever your family needs while they wait on bulk of your term or perm life insurance to be processed.
Term insurance is insurance for a specific death benefit, for a specific time frame, and for a specific premium payment. It is fairly inexpensive, but can still cover you for the most crucial and potentially expensive life seasons. Times when you just bought your first home and, therefore, you and your partner are responsible for a much larger debt then before. Or when your children are in school, and it’s going to be 10 to 15 more years that you want to be able to provide housing and food and fun experiences for them.
Term is for those 10-30 years when you have a mortgage, minor children, a spouse going back to school full time, and car and credit card payments. The goal is that by the end of the specified term – your insurable needs have lessened over time and you have a permanent insurance solution based on your overall financial strategy into later life.
Term covers you only for the specified term! So you have to remember if you get a 10 year policy, 10 years from now that premium you’re paying every month is going to change drastically, and you may not be insurable anymore, etc. So you want to make sure you have a long term solution in place before the term is up.
Permanent insurance has so many options available today! Whole Life is only one of several types of permanent protection out there. And it happens to be the least beneficial in my opinion. But you also have vehicles like Indexed Universal and Variable Universal that allow flexibility of your premiums, tax advantages, and cash accumulation! In these accounts you are able to earn a good rate of return with much less volatility. Plans that follow a market index or are managed by investment professionals lets your money grow without the threat of losses. Money built up in these plans can be used for your dreams and goals, or to supplement your retirement. If you don’t use it yourself, the added growth of the platform is generally added to your total death benefit and gets passed on to your loved ones.
How Much Life Insurance Do You Need?
I don’t know how much you keep up with the average cost of big moments in life in America. Like the average cost of a wedding? The cost to have a baby with or without medical insurance? Or a seven-year-old’s birthday party? The cost of going back to school? Not many of us know the average cost of a funeral, or even the bare minimum of what we legally have to take care of when someone dies. For your curiosity – the average overall expense for everything from last breath to burial will cost your family about $10,000. The cost to just be cremated is still close to $4,000 all in.
That is just the immediate need of a family when someone dies. Hence why there are over 2 Million GoFundMe pages for funeral expenses in the United States today. That is half the entire population of Colorado!
DIME and 10/20
Once the immediate needs are addressed with a final expense policy or an adequate emergency fund, how much should you have in term and perm coverage? We usually go off of one of 2 methods – DIME or the 10/20 Rule.
Bottom line is you want to have enough for your family to not have to feel the financial impact of your absence, and if you are also using your LI as a retirement money bucket, you should plan on living in retirement for 20 years.
For example’s sake, let’s say your Number is $500k. You can have part of that in a term policy and part in permanent. Or if a tight budget is a concern, put all the coverage into term while you work on your other finances. The important thing is to have a something in place. Even if it’s not as much as you would like, start somewhere.
The only policy that matters is the one that is in place.– Bridget Brennan