No one really wants to think about death. We think we are young and invincible and that we’ll live forever. Unfortunately, many people are not immortal, so now is the time to plan for the inevitable. If you were to die today, how will your children survive financially? Who is going to pay off your house? Is your spouse or significant other going to be stuck in debt because of funeral costs and unpaid medical bills?
Life insurance is one of the most important financial decisions you will ever make. There are numerous products out there, and the lingo can get quite confusing. Don’t worry too much. The three most important terms that you need to know are death Benefit, whole life and term Life. While there are many variations and combinations of whole life and term life, if you know the basics, you won’t be totally confused.
Death Benefit:
The death benefit is the amount of money your survivor or beneficiary will receive upon your death. This amount will be reduced by any outstanding loans that you have taken out against your policy.
Whole Life:
Whole life covers you for life. It is permanent coverage and remains in place as long as you continue to make payments. Although this is the most expensive type of life insurance, it builds up cash value. You can make loans against the accrued amount, but be cautious. Any amount you borrow should be paid back or your death benefit will be reduced.
Term Life:
Term life is insurance that covers you for a specified period of time. Common term policies cover you for 10, 20 and 30 years. This type of insurance is much more affordable than whole life, since it is temporary insurance. One key feature of many term insurance policies is guaranteed convertibility. This means that if you decide to change your policy into a whole life policy, you cannot be denied, regardless of health. Be mindful, however, that there are certain time limits for you to convert your policy.
Term life can also be used as a type of mortgage protection. For example, you have a 30 year mortgage on your home. You would purchase a 30 year term life policy. If you died before the end of the 30 years, your death benefit can pay off your mortgage balance.
In order to determine the amount of insurance you need, some experts suggest that you multiply your annual salary by 20. I suggest that you take some type out and itemize all of your expenses, including car payments, mortgage payments, tuition for your children, etc. Once you have everything written down, come up with a figure that will allow your beneficiaries to live comfortably for at least ten years (longer if you have young children).
The time to buy life insurance is now. The younger and healthier you are, the cheaper insurance will be. This chart shows the rates from a popular carrier of term life insurance for non-smokers of various ages. Please note how the monthly premiums increase with age.
Term Life Insurance - Monthly Rates | ||||||||||
For $100,000.00 | For $200,00.00 | For $500,000.00 | ||||||||
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10 years | 15 years | 30 years | 10 years | 15 years | 30 years | 10 years | 15 years | 30 years | ||
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20 | Male | $13 | $14 | $21 | $14 | $16 | $27 | $22 | $25 | $48 |
Female | $11 | $13 | $19 | $13 | $14 | $24 | $19 | $22 | $41 | |
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25 | Male | $13 | $14 | $21 | $14 | $16 | $27 | $22 | $25 | $48 |
Female | $11 | $13 | $19 | $13 | $14 | $24 | $19 | $22 | $41 | |
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30 | Male | $13 | $14 | $23 | $14 | $16 | $31 | $22 | $26 | $55 |
Female | $11 | $13 | $20 | $13 | $15 | $25 | $19 | $23 | $44 | |
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35 | Male | $13 | $14 | $25 | $14 | $16 | $32 | $22 | $26 | $57 |
Female | $11 | $13 | $21 | $13 | $15 | $27 | $19 | $23 | $46 | |
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40 | Male | $16 | $18 | $35 | $18 | $21 | $46 | $29 | $35 | $85 |
Female | $14 | $16 | $29 | $16 | $19 | $36 | $25 | $31 | $65 | |
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45 | Male | $21 | $26 | $50 | $25 | $34 | $68 | $43 | $61 | $141 |
Female | $18 | $22 | $38 | $21 | $27 | $52 | $35 | $46 | $105 | |
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50 | Male | $29 | $37 | $80 | $36 | $53 | $108 | $65 | $99 | $230 |
Female | $24 | $29 | $56 | $28 | $36 | $75 | $49 | $65 | $161 |
As you can see, for less than the amount of money you spend on getting your hair done or cut, you can guarantee that those you leave behind can survive in this tough economy. Even if you do not have children, you can have your death benefit given to charities or foundations of your choice. It is highly important that you contact your insurance specialist and map out a plan for your future. You cannot afford not to. It is a matter of life and death.