Why do you need to insure your life?
We’ve all heard the pitch, “if you die tomorrow would your family be OK?”. Life insurance is important but it’s also very important to understand what you’re buying.
Agents and producers make the most money on life insurance typically, so unfortunately it gets oversold and inflated more often than not (in my opinion).
Most of us don’t want to think about what happens when we die or we think we have plenty of time to worry about it later. The problem with that mentality is that the older you get the more expensive life insurance costs. Along with that you could become un-insurable by contracting a health condition or terminal illness.
That’s all fine and dandy but I know you’ve got the million dollar question “Do I actually need it?”
Like it or not, you probably could use Life insurance
If you’re 20 years old and “living la vida loca” you’re probably not too worried about life insurance. Everyday I have people come to me at age 65 and say I NEED life insurance. Unfortunately, at that stage, it is really hard to find an affordable option.
Do yourself a favor and explore your choices while you still have your health and age is on your side. Whether or not you believe you need it life insurance can benefit your situation. There is a cost feasible option you just have to know what type is right for you. It’s better to have it and not need it than to really need it and not have it.
So what type is right for me?
When it comes to life insurance there are essentially two types; Permanent and term. You want to think of it like owning versus renting a life policy. The term policy is like renting, you pay a certain amount for a certain time period and you are guaranteed that benefit. The downside is once the term is over you forfeit any value or money you paid in.
The permanent option will usually cost a little more but you have the ability to earn that cash back. There are many types of permanent (or whole) life insurance, and they type you choose will determine the amount you make back. When you pay into a permanent life policy, part of it goes toward the insurance itself and another part goes into a separate account. That account is credited with interest based on what amount of risk you want to take.
Standard whole life typically has a very conservative return of usually 3-4% but will not fluctuate with the market. Variable or indexed types will have much better upside return but may also have the chance of loss or limited earnings. Picking which product is right for you will depend on several factors, first and foremost how much you want to spend.
Why should I invest in Life insurance?
I want to preface all of this by saying I am not recommending everyone go out and put all their money in life insurance investments. Everyone has a unique situation and Life insurance should only be a part of an overall financial strategy.
Life insurance investment accounts have one major advantage, tax free income possibility. The investment accounts attached to life policies have some advantages when it comes to tax consideration. Because you are loaning or borrowing against value you have made amounts you withdraw or loans you take are not considered income. What this means is that you don’t pay taxes on certain portions of you cash value, or the money you have put aside in the policy. This differs from a standard retirement account because if you are pulling money out of a 401K or IRA you will be taxed on that money at whatever your tax rate is. Why does this matter?
Most experts predict in the next 10-20 years we will see tax rates increase. With programs like Social Security and national debt increasing at an astounding rate, someway, somehow our country is going to have to flip the outstanding bills. This means if you are in your twenties or thirties by the tome you retire you could be paying substantially more in taxes. That also means when you are ready to pull money out of those retirement accounts, Uncle Sam may be taking a larger slice of the pie. This is where that life policy will serve you well, you could pull some income from it that Uncle Sam won’t be able to touch to offset the extra you are paying from your traditional retirement program.
The other big advantage this gives is that income will not count into your consideration for benefits like Social Security. Many benefits of the elderly are paid using income as a determining factor. The more income you show the less you benefit will be. However, if you were receiving cash value from a life policy that wouldn’t count against the income you report, which means you can receive better benefits in most cases.
Again I want to say that this strategy may not work for everyone. To have enough value for a decent source of income you typically have to over fund them by quite a bit and start early. The earlier you start the more you can put in while the insurance is still cheap, with life insurance the older you are the more it costs for the coverage.
Have the talk before it’s too late!
Either way this is one strategy that not many know about but can really be advantageous in many situations. Be sure to talk to your Financial expert before you start and use this knowledge to decide what’s best for you. In the end you really want to have the most diversity as putting all your eggs in one basket could be disastrous. We all want a great retirement and the way to get there is by starting early and learning about the various strategies. If you’ve read this article you are already starting to think about it so good job and keep it up. As always if you enjoyed this info and find some value in it share it with your friends and leave some feedback. Thanks for reading and go kick some insurance BUTT!