My wife and I recently had our first baby, which forced us to really start thinking about our financial future. I do believe retirement accounts are very important, but I will discuss that in my next post. Retirement accounts, most likely, won’t help your significant other or child if something happens to you, but a life insurance policy can help supplement the lost income. Nobody likes talking about death, but as we have all heard “the only guarantees in life are death and taxes”. The following are some current statistics on life insurance from the Life Insurance and Market Research Association (LIMRA):
- Only 61 percent of men and 57 percent of women have some sort of life insurance coverage.
- On average, women have $129,800 of individual life insurance, while men have $187,100 of individual life insurance coverage.
- About 4 in 10 insured husbands and insured wives have only group life insurance coverage, which often has the lowest average amount of coverage.
- Insured husbands in the U.S. carry enough life insurance to replace their income for only 4.2 years, and wives for only 4.9 years.
Experts recommend that each person in a household should have enough coverage to replace 7 to 10 years of income. This may seem like a lot of money and it may seem like it can be expensive. Life insurance can very affordable if it is started at a young age and if you are in good health. There are many variations of life insurance policies, but there are three basic types:
- Term Life Insurance – This type is the least expensive, but it is only insurance protection. This means it doesn’t build cash value. It is also only good for a certain period of time, such as 10 to 30 years. Term insurance premiums stay the same for the period chosen and can be renewed at a higher premium rate.
- Whole Life Insurance – This type is often the most expensive, but it provides a guaranteed death benefit for your entire life. It also has a tax deferred cash value accumulation, which can generally be borrowed against at a tax-free rate. The premiums stay the same over the life of the policy. Most life insurance companies also give these policies the opportunity to receive dividends. Whole Life policies can also be used to supplement retirement, which I will discuss in my next post.
- Convertible Life Insurance – This type is often more expensive than term insurance, but cheaper then whole life. This policy would start out as a term policy with the opportunity to convert it to a whole life policy. This policy helps protect you from the increasing prices of life insurance and the fees you would incur to start a new policy if you wanted more then a term policy.
Life insurance is a great investment and provides a piece of mind because your family is protected. You would not drive your car without insurance, so why would you not get life insurance. I hope this post was able to shed some light on the importance of life insurance. Remember to look for my next post about preparing for retirement.