If you’re planning to make 2017 the year that you finally get ‘the financial responsibility thing’ under control, you can start by getting a life insurance policy in place.
A new report from life insurance research group LIMRA finds that only some 87 million households have any kind of life insurance coverage at all. That works out to be about 70% of Americans, which is great!
The bad news? Another 30% of us have no coverage in place in the event of our untimely passing.
It’s time to change that…
A lot of people shy away from life insurance simply because they don’t understand it. Here are some common questions about life insurance and the answers you need to know to make an informed decision.
What is the purpose of life insurance?
Life insurance is intended to serve as income replacement for your heirs in the event of your untimely death — nothing more and nothing less. That means annuities that combine a life insurance policy with an investment component are a no-no in Clark’s book.
‘Variable annuities come with huge sales commissions, huge expenses and a huge tax burden to you,’ Clark says. ‘And if you want out, you usually have to pay a massive fee known as a surrender charge.’
What kind of life insurance do I need?
Clark recommends what’s called level term insurance.
‘Level term’ means you pay one flat rate year after year for the length of the policy. This policy will replace your income should you die prematurely.
You buy it for periods of 20 or 30 years and the premium stays the same during the life of the policy.
How do I shop for it?
You can comparison shop for term life insurance quotes at any of a number of sites like HavenLife.com, Quotacy.com, PolicyGenius.com, 1stOptionInsurance.com, Insure.com, AccuQuote.com or QualityTermLife.com.
By shopping online, you avoid an insurance salesperson trying to up-sell you from level term coverage to another insurance product that may be unsuitable for you.
Can I afford it?
Yes! One non-profit insurance industry group says that a healthy 30-year-old man can get a $250,000 level-term policy for 20 years at a cost of less than $13 a month.
That’s around $150 a year…and the price never goes up with a level-term policy!
How much coverage should I buy?
When it comes to the question of how much you should buy, people can get crazy with all kinds of complicated formulas. Clark says that you should buy six to 10 times your annual income.
Should I get it through work?
This is a popular option for a lot of people. In fact, almost half of people who insurance participate in a group policy through their employer. The average coverage is $236,000, which is about 2.6-times income replacement.
The benefit of buying into a group policy usually means that you don’t have to pass medical underwriting. Another possible benefit is portability of benefits.
Portability of benefits means you can sometimes continue your policy even if you leave your employer — so long as you are willing to pay the full cost of the premiums. This arrangement was a tremendous benefit for our late contributor Matthew Quinlan and his family.
But it’s often better to qualify on your own and go through medical underwriting so you can buy a policy independent of your employer.
The reality is most of us don’t stay at the same job forever and you may not have a right to take that insurance with you.
Do I really need it?
Does somebody depend on you? Do you have young kids or a spouse or significant other that depends on you financially? Then you need life insurance!
And don’t forget about stay-at-home spouses. Should a stay-at-home spouse pass away, the remaining parent would have to suddenly pay for childcare and everything else a stay-at-home parent does on a day-to-day basis. That’s why it’s essential the parent at home have a policy too.
Don’t have any one who financially depends on you? That’s the only time you don’t need a policy.