Currency tradingA Simple Introduction to Life Insurance
Unless you're that odd person who's buying life insurance every day (which would probably correspond with an official diagnosis), it might seem a little confusing. You have a vague sense of the risk of what would happen if you were to pass away but that doesn't help much when a range of options appear on your screen with fancy names wrapped around words like "sure", "safe", and "trust". What does it all means and how you do find the right life insurance plan for you. Most importantly, you don't want to pay too much. Let's look to see if we can simplify the world of life insurance for someone new to the market.
Let's answer some of the big questions first. The first consideration is what type of life insurance makes the most sense. As you see from our website title, we have our preferences and it has everything to do with what works in your interest. Let's be up front...we could recommend whole insurance and come out ahead as life insurance agents. The life insurance company would also be pretty happy. Whole life is quite a bit more expensive than term life. We have written extensively about why in our articles such as term life versus whole or why term life makes sense but we'll give you a quick synopsis. Term life is for a fixed period of time...usually anywhere from 5 to 30 years. You are able to lock in a lower fixed rate during this time for a fixed amount of term life benefit. With whole life, you pay a higher premium to offer a lower amount of benefit for...well...your entire life. There are little add-ons such as the ability to add cash value to your policy over time. This amounts to a sales pitch in our opinion. You're paying the life insurance company extra (significantly more) premium to then give you a percentage of that money back?? It's hard to make the math work. Why do people go with whole life with such a set-up? Well, there's a psychological mechanism at play where life insurance for a person's entire life feels good. But really think about it. In order to correctly view this thought process, we need to look at what life insurance is for to begin with.
Let's break this down as simply as possible. We have two people. Person #1 is like us...they are not guaranteed to live to age 100. #2 has some amazing deal where he/she is guaranteed to live to age 100. It must be some new diet craze. Would person #2 buy life insurance? Of course not. Why?? Let's look at person #1 to answer this question. If person #1 passes away early, what's different from the situation that person #2 is in. His/her income goes away for those remaining years. Usually, people buy life insurance when they have family members that are financially dependent on them . Life insurance is about lost income over a period of time. The key there is long period of time...not months...but years...maybe decades depending on their family make up. It's usually to help raise young children or reduce/remove financial obligations for a dependent spouse. Does it make sense to cover this potential loss for your entire life...let's say to age 85 (as life expectancy averages continue to increase)? In light of the higher premium that whole life requires, it's hard to justify this coverage. Especially in light of other strategies such as purchasing term life and investing the difference. We are happy to walk you through different comparisons between whole and term life but let me just summarize by saying...I personally have term life for my family.
Once we've realized the benefits of term life insurance, there are two critical pieces of information left. The first is the amount of term life insurance and the second is for how long we want the protection. This is a little trickier as it's based on each person's specific needs. We have a more comprehensive articles and a Term life Planner tool to help with the amount. Our recommendation is simple. Establish a monthly or annual budget you feel comfortable with and then use our term life quoting tool to stay within that budget. It's very important that can afford the coverage you sign up for. Otherwise, it defeats the purpose of life insurance to lapse coverage due to non-payment. Our quoting tool is pretty impressive (if we can praise ourselves). It will automatically find the best priced plans to meet your amount/term length requirements. You can then adjust up or down on either parameter to find the right blend that meets your budget. A lot of life insurance agents will tell you..."You need this much or this amount" regardless of the pricing. They're not the ones paying for it and ultimately, affordability is important. We would rather you have a life insurance policy you can afford over the course of the policy than more coverage (or even over-insurance) that you can't. Again, we're looking out for your interest.
Once we have addressed type of life insurance (term), and amount/length of term (based on budget and needs), our engine will do the remaining work. Of course, as professional life insurance brokers, we are here to help you with the sometimes overwhelming world of life insurance. We'll help you narrow down the pieces and find the right coverage to address your needs at the best possible price. That's our goal.