Life insurance is one of those things that, like estate planning, is capable of giving you an incredible sense of peace. It’s something that will help you sleep at night, because you’ll know that your family is going to be cared for, even if something happens to you. Personally, I love that knowing you have provided financially for your children frees you up to nominate guardians based on who would love your children and raise them in a manner similar to you—not who has room for them or who could afford them. So raise your hand if you know you have enough life insurance. Yay! Good job Maui Mama! If you are not sure if you have enough or…gasp…you don’t have any at all, let’s examine that.
Is it because you have enough other assets to completely finance your children’s life through college? If so, great-lucky you! Or is it because you haven’t gotten around to it, don’t know where to get it, don’t understand it, or don’t think you can afford it? If you fall into this second category, read on…
There are a couple different kinds of life insurance—term and whole life.
Term insurance is exactly what it sounds like: an insurance policy that insures your life for a specified term of years, after which it expires and will not provide your beneficiaries with any death benefit. This option makes the most sense for the highest number of people, because most of us can plan for the day when our dependents will be “on their own” or for the day when retirement funds will kick in. Equally as important, term life insurance is inexpensive. Term insurance also will allow you to keep your investing separate from your life policy, which means you have more control over where and how your money is invested.
A Whole Life policy is one that will certainly outlive you and provide benefits for your beneficiaries, because it is designed to be both life insurance and an investment vehicle that exists until the day you die. But whole life insurance has a few problems:
• Because of the investment component (and the commissions paid to the insurance agent), it’s very expensive.
• Growth rates of your premiums may be just guesses. Don’t fall into the trap of believing they are guaranteed.
• People buying whole life can end up underinsured, because the policies are more expensive and, as a result, the appropriate amount of death benefit coverage just isn’t affordable.
While at first glance whole life insurance appears to have the benefit of generating tax-free cash from investment activity, upon closer inspection you’ll find that any type of early termination of the policy (even ten years after it’s created) may leave you with no cash value.
My goal is just to provide you with some basic ideas to get the ball rolling. Lots of people have strong opinions about life insurance (especially life insurance agents). You should still do your research and come to the decision that best fits your needs.
If you have questions about life insurance (we don’t sell it but know some good people who do) or planning for your loved ones in general, please give us a call at 244-3905.
Image Credit: Obenauf Law Group