When I was younger, I believed that insurance was a scam. After my long journey learning about all aspects of personal finance, I realized I was wrong. You see, each and every person has an economic value for their life. Just think about how much money you will earn in a lifetime. This economic value is important, especially if you have dependents such as a significant other or children that depend on your income for support. What would happen to your dependents if you died without life insurance? Would your significant other be able to cover your funeral costs and continue the lifestyle he or she is accustomed to? Will your children be able to go to college?
Even if you don’t currently have dependents, life insurance is an important part of a financial plan. The average funeral costs between $15,000 and $20,000, and dying without life insurance (or savings to cover your burial costs) could leave your family in a financial bind. Dealing with a death in the family is a very emotional and stressful experience. Don’t add to the stress by not leaving enough money to cover your funeral expenses.
One way to ensure that your life is covered with minimal cash out of pocket is to purchase term life insurance.
What is Term Life Insurance?
Term Life insurance is a form of temporary insurance. It only covers the insured’s life for a specified amount of time. The simplest form of term life insurance is known as yearly renewable term insurance. This type of policy is usually offered by an employer through group term life insurance benefits. Yearly renewable term insurance provides life insurance protection for 1 year and allows the policy owner to renew each year without submitting evidence of insurability (usually a medical examination and credit check).
Another form of term insurance is individual term life insurance. This type of insurance is temporary insurance that can cover an individual’s life for 10, 15, 20, and even 30 years.
Who would benefit most from Term life Insurance?
Term life insurance is appropriate for everyone, but it is especially useful for those of limited financial means. The premiums for term life insurance are the least expensive of the life insurance products currently available.
What is the downside to owning Term Life Insurance?
Term life insurance is a temporary form of insurance. Let’s say you purchase a 30 year term life insurance policy, but are still alive after the 30 years pass. You have two choices at that point: Purchase additional term life insurance at a much higher rate as the cost of life insurance increases with age or go without life insurance all together. At this point your children should no longer depend on you for financial support and you should have accumulated enough assets to support your significant other when you do actually pass away. As everyone knows, sometimes things don’t work out according to plan. Financially conservative individuals view this as a huge risk to take since the future is uncertain. Those who are risk averse usually avoid term life insurance and opt for whole life insurance which provides life insurance protection for the entire life of the insured (at a much higher cost, of course).
Is Term Life Insurance right for you?
The decision to purchase term life insurance is purely individual. If you can’t afford the higher cost of a whole life insurance policy, then perhaps term life insurance is right for you. It is better to have some form of life insurance then to have none at all.
Personally, I own a combination of Whole Life and Term policies. My financial plan consists of investing on a regular basis, avoiding debt, and making extra payments on the personal mortgage. My Whole Life policy is smaller and factored into my retirement planning when I figure the Cash Value and then I supplement that with Term policies to protect either Darla or myself in the event something were to happen to one of us then the Term would provide a cushion for the lost income. Essentially it is a stacked system where as our debts and expenses fall off over time so do the needed insurance policies – that would have provided protection for us if something happened to either one – finally leaving in the end a Whole Life policy with a significant Cash Value. You would DEFINITELY want to speak with a Financial Adviser like Darla before setting up a system like that.