Life insurance is not sexy. It’s not fun to talk about and it’s definitely not a process anyone enjoys. However, much like death and taxes, buying life insurance is an essential part of life and a crucial element of sound financial planning.
- How Does Term Life Insurance Work? Term life insurance is quite simple—you pay an annual premium for the “term” of the policy (usually 10, 20 or 30 years) and if you die within those 10, 20 or 30 years, your beneficiary will collect the specified amount indicated on the policy.
- How Does Whole Life Insurance Work? A whole life policy provides a set amount of coverage for your entire life. As long as the premiums are paid, your beneficiary will receive the benefit amount upon your death. Whole life policies also build up "cash value" from part of the premium being invested. It’s also possible to access that cash value as the funds grow.
Why Do You Need Life Insurance?
- If You Were To Die Tomorrow, Who Would Assume Your Debt? If you own a home, a business, or have personal liabilities, someone else will become responsible for those liabilities (generally your next of kin). Therefore, your spouse, your parents or your siblings could end up having to pay your debts after the good Lord takes you.
- Do You Have Children? Guess what? If you have kids and you don’t have life insurance, you may have put your entire family at risk. I know that seems a bit harsh but it is a potential reality. Enough said on that.
- Are You A Business Owner? What would happen to your business if something were to happen to you? Do you have a succession plan? If you a business owner and do not have a succession plan, speak to a financial advisor to get you on track to help you create one. This could mean purchasing some type of insurance product and creating some documents determining who would inherit your business and its assets and liabilities.
How Much Insurance Do You Need?
The general formula used by insurance agents is somewhere between 7-10 times your annual salary. For example, if you make $100,000/year, you should consider buying somewhere between $700,000 to $1,000,000 of insurance. That being said, if your life is complicated (kids, business, lots of debt), you should probably look to increase that amount. A
