This is a question we get asked all the time. So let’s talk about life insurance for a minute. Do you really need it?
If you’re young, your initial answer is probably, “No! I’m young, strong as an ox and have years ahead of me. Why would I need life insurance?”
If you’re a bit older and you have begun to experience the wear and tear that comes with age, you may think you need life insurance, but aren’t completely sure.
We’ve put together this guide to help you decide whether or not life insurance is an important purchase for you.
What Exactly is Life Insurance?
Before we dive in to whether or not you need life insurance, let’s start with the basics. Life insurance is a contract where a tax-free sum of money get’s paid out when you pass away.
This sounds totally morbid right? It’s still important though and each and every one of us will have to confront it eventually.
The reality is, life insurance provides financial protection to those who rely on you or your income and ensures that they will be taken care of if you die.
For example, let’s say due to a freak golfing accident, you end up going to the great golf course in the sky. You got hit by your own ball, tripped on the course, whatever.
The details don’t matter. What does matter is that you are no longer there to support those that rely on you or your income.
Now if you had purchased life insurance prior to the golfing accident, the life insurance company would send out a payment to your beneficiaries, such as your spouse, children or business partner.
Life insurance provides you the peace of mind to know that your loved ones will always be taken care of, even if the worst happens.
How much does your beneficiaries receive if you were to pass away?
This is going to depend on how much life insurance coverage you purchased. The more coverage you have, the more you will pay while your alive. However, this also means your family will receive more upon your death. The type of policy you choose will ultimately determine how much will be paid out.
You have two different options when purchasing life insurance:
Term Life Insurance
This is the simplest and least expensive type of life insurance. You can get a ton of coverage for a substantially lower cost each month. It will cover you for a specified term, usually between 1-30 years. However, once the term has expired, the contract ends and the insurance company is no longer obligated to pay a death benefit.
When looking at a term life insurance it is important to choose a policy that will not terminate until those that rely on you are not so financially vulnerable. Many people keep a term life insurance policy until their children are financially self-sufficient, the mortgage or any debt is paid off and they have plenty in savings for retirement.
Permanent Life Insurance
Permanent life insurance on the other hand covers you forever. If you purchase this type of policy, the insurance company will pay your family when that time comes, as long as you pay your premiums.
However, this extended coverage has a trade off. It come’s at a much higher cost than term life insurance. Often time’s it can also come with cash value, like Whole Life Insurance, that act’s like an investment account where you can borrow money. We don’t really recommend meshing investments and life insurance because this feature often come’s with exuberant fees that end up eating away at your investment. The benefits for many of these policies don’t really justify the higher cost and they tend to not be the best option for most situations
The only permanent life insurance product that we do recommend is a Guaranteed Universal Life policy. This type of life insurance acts like a term policy and is about 3-5x less than Whole Life insurance. It does not include the same cash value component, keeping your investments away from insurance companies, and can cover you until you are 90, 95, or even 100 years old!
Do I Really Need Life Insurance?
The best way to answer this question is by asking yourself:
Will anyone have a financial burden if I die?
If you answered, “Yes,” to the above question, you probably need life insurance.
From diapers and clothes to college books and dorm rooms, kids can be very expensive. If you have children that have not reached a point of financial self-sufficiency and rely on you or your income, you need life insurance.
If you have a wife or husband who relies on your income, you need a coverage that will ensure that their is no left behind debts or mortgage and they can continue the lifestyle you have worked so hard to provide them.
If you are a homemaker, you provide one of the most valuable benefits to your children and home: care and nourishment. If something were to happen to you, they would still need this and it would need to come from an outside source. The average homemaker in 2020 was estimated to be worth over $195,000 per year! You provide a lot of value to your home and you need to ensure that can still be provided if something were to happen to you.
Homes are considered to be one of the largest purchases a person will ever make. Although they come with some awesome benefits they also generally come with a mortgage. With life insurance, you can make sure that this blessing to your family does not become a burden if you were to pass away.
If you own a business it would be wise to ensure you have a life insurance policy for your business partners so that your company can keep running smoothly. You worked hard for your business, don’t leave it crumbling.
But I Already Have Coverage Through Work?
That’s awesome! You have already taken one step in the right direction! However, often times these policies will only cover a certain multiple of your salary which tends to not be nearly enough to cover income needs after death.
Some more things to think about:
- If you ever stop working for that employer, you no longer will have coverage. What would happen if you developed cancer and could no longer work in your current position? You can’t stay out on leave forever. Your company would eventually have to let you go and now you can’t even apply for a new policy.
- Your life insurance through work may not be nearly enough. Usually work will give you 3-5x your income worth of coverage, but that will not support your family for very long. It may be good to purchase an additional policy to make up the difference. The last thing you would want is for your family to discover that the life insurance you had will only provide for a couple years of expenses.
Conclusion: Life Insurance Plays A Crucial Role In Your Finances
Life insurance is one of the most important purchases you can make to provide for those that rely on you. It’s something that you hope to never have to use but can provide your family the ability to pay for the mortgage, grocery bills, utility bills, funeral arrangements, a college fund for your children.
Failing to purchase the right life insurance can leave your dependents in a financially devastation situation.
If you need life insurance, Metcalf Financial can help you find the right policy for your unique situation. Our insurance experts will hold your hand from A-Z as we guide you to the right insurance protection for your family. Get an instant quote or give us a call at (928) 514-6150