Life Insurance Myths

There seems to be two common myths when it comes to life insurance and young families.  The first is that insurance is expensive and simply not affordable.  The second is that most people believe they need far less insurance than they actually do.  These two myths can significantly affect the future of any young family.  Let me explain:

Life insurance can take on many different forms.  Although they provide a great deal of value down the road, permanent policies such as Universal Life and Whole Life insurance can be very expensive.  Term coverage however can be much more affordable.  It’s kind of like the difference between buying and renting a car.  To buy the car, you’ll have some big monthly payments but you will own it at the end.  If you rent it, the cost will be much lower but you have nothing to show for it in the future.  Term coverage isn’t necessarily a bad thing as it will provide you with all of the protection that your family needs for a lower price.  A fit and healthy 30 year old male could get $1,000,000 of term coverage for as little as $33 per month!

Now you may be thinking that $1,000,000 seems like a lot of insurance and way more than you really need.  The reality is that it’s probably still not enough for many young families.

Let’s use the example of a 30 year old couple with two young children.  One spouse works full time and earns a decent living while the other is at home taking care of the kids and the house.  If the working spouse was to pass away tomorrow, what would their family need to survive?

$1,000,000 invested to earn an average of 6% per year over the long term would create $60,000 per year as taxable income for the family to pay for the house, bills, children’s expenses and more.  All of a sudden, it doesn’t sound like an excessive amount of money.  I realize that this plan doesn’t touch the capital (from the insurance policy) but you really can’t afford to do that.  With the $60,000 being used up to raise and feed a family, there won’t be much left over for the remaining spouse’s retirement fund contributions.  With the way inflation has been increasing, the $1,000,000 of capital will still be a tough figure to retire on.

So is $1,000,000 the magic number?  Probably not…  You may also want to provide funding for the children’s university education, extra coverage for a mortgage or other debt, a parent in need or perhaps a disabled sibling.  Each family’s situation is different and the amount of coverage required should be based on a full insurance needs analysis.  Also, each insurance company has different options and prices and no one company has the right product or the best price for everyone.

Make sure you talk to a licensed insurance advisor who has access to multiple insurance options and can find the best one for you.  Term insurance is fairly straight forward so price usually dictates the use of one provider over another.  Ask the advisor to print off a list of quotes from all the major companies so you can make sure you’re getting the best product for the lowest price.

Give me a call if you need assistance.