Do You Need Term Life Insurance?

When Is It Time To Obtain Term Life Insurance?

Obtaining term life insurance is an important decision to make. Life insurance provides a pre-determined sum of money to those that depend on your income if you lose your life. What would your dependents do if you and your income were lost tomorrow? A typical milestone for getting life insurance is after getting married or having a first child.

Some may view life insurance as another expense and procrastinate signing up for a policy. It may not be a priority. Perhaps you have it planned for after you’ve paid off debt or accomplished some other goal. Carrying debt only makes it more important that you have life insurance. Your spouse could be left struggling with the financial obligations that were previously being attacked with two incomes. Term life insurance is cheap when comparing the cost with the amount of coverage you can get. It should be looked at as a necessity like auto or homeowner’s insurance.

Is Life Insurance From My Employer Enough?

Employers typically offer a small multiple of your income in coverage. It may only be one to two times your income. While this is a start, it’s probably not enough.

Life insurance from your employer may not be transferable. Your health situation could change and you would run the risk obtaining a more expensive policy if you lose your job. There’s also a chance you could become uninsurable.

Your employer may offer supplemental coverage to increase the basic coverage everyone receives by default. It’s more likely that this supplemental coverage is portable. Term life insurance obtained outside of your employer is likely a better value. When an employer offers life insurance, the company’s workforce health is assessed. If the company has a high average age or a lot of smokers, you may pay more than you’d pay independently. Obtain a quote to compare your options.

How Much Life Insurance Do You Need?

The life insurance policy pays out in a lump sum without any taxes being owed. A general rule of thumb supported by many financial experts is ten times your income in life insurance. Ten times your income is a great starting point but there are different factors that should be considered.

The goal of the life insurance will help you decide how much coverage to obtain. The following are some items you may want to ensure you can cover.

  • Funeral and associated costs
  • Pay off a mortgage
  • Provide a defined number of years of a previous salary
  • Dependent college expenses

Coverage should be considered for both the primary income earner and a stay at home spouse or part-time earning spouse. Paying someone to perform the activities the stay at home spouse was doing could present a heavy financial burden.

If your children are college age and you decided to co-sign their loans you may want to take out a small policy on them to cover the debt.

Term Life Insurance VS Whole Life Insurance

Term Life Insurance is coverage for a defined number of years – 10, 20, 30, etc. After the term is up you have no coverage and there is no cash value to the policy. This is the type of life insurance we carry. Term life is a much better value than whole life. Term life insurance should carry you to a point in your life where you no longer need to provide for a dependent. This could be your target retirement year or sooner.

Whole life insurance builds a cash value. The policy may be cashed out early or you can wait until it terminates to take the proceeds. The insurer invests your money minus expenses. If you pass before the policy finishes they’ll pay the full value. If you don’t pass they’ll pay you a cash value of the premiums paid plus interest minus expenses.

Insurance and investing shouldn’t be mixed.  Life insurance should be looked at like auto or homeowner’s insurance. Whole life is much more expensive than term. If you invest the additional money you’d pay for a whole life policy you’d come out far ahead.  Here’s an example of how cheap term life insurance can be obtained. On 3/3/17 I ran an online estimate for a 30-year-old male, healthy (preferred plus), non-smoker, 20-year term, $500,000 coverage, and the cost came out to $240/year.

Getting a Quote

Health will affect your quote. Do not let this delay or deter you from getting a quote. The younger that you can lock in rates the cheaper it’ll be. You also reduce the risk of a future health problem prohibiting you from getting insurance. The process is usually as follows

  1. Compare free quotes
  2. Select an insurer
  3. Fill out an application
  4. Medical exam (Usually at home at the insurance company’s cost)
  5. Pay the first premium

We personally use term insurance to protect us until the point in the future when we’d no longer need life insurance. The insurance was purchased through Zander Insurance. Zander is not an affiliate. Their website allows you to compare rates among different insurers instantly without being spammed. I recommend you experiment with different numbers with their online calculator or someone else’s today.

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