It’s that time of year again and I know you’re all excited. No, it’s not football season or fall. It’s Life Insurance Month!
According to a study by Life Happens and LIMRA, 1 in 3 households would have immediate trouble paying living expenses if the primary wage earner died. That same study also found that 40% haven’t bought life insurance or adjusted the limits because they don’t know which type to buy or the appropriate limits.
There are of course those among us with significant nest eggs or inheritance, but that is the exception not the rule.
Make no mistake about it, however, the odds are if you are reading this article you need life insurance. Your income is your biggest asset. If you are the breadwinner, have a non-working spouse or have kids in the dependency period, you need life insurance. It’s really that simple.
From putting food on the table and keeping the lights on, to financing education and sustaining your surviving family’s existing quality of life, the loss of the breadwinner puts this all in jeopardy.
Given that one of the primary reasons people fail to purchase life insurance is lack of education on it, we’ll start there.
Let’s first dispel the myth that if you’re young and healthy you don’t need it. I would argue that’s the best time to buy it. Life insurance is rated based on your age and health, so if you want to lock in the lowest rates for the highest coverage, today is a better day than tomorrow to get moving.
Once you come around to the notion that you need it, which type should you buy? There are two prevailing types of life insurance, each with their own variations.
The first is term insurance. Term insurance is exactly that, insurance for a set term, e.g. 10 years, 20 years, 30 years, etc. It is available across of broad range of limits and is by all accounts the cheapest form of insurance. If you outlive your term, there is no benefit payable from the insurance company. But, look on the bright side, you’re still alive! We should all be so lucky as to outlive our term policies.
The other major type of insurance is whole life which, as the name suggests, remains in force for your whole life. It is typically much more expensive than term life but does accumulate a cash value that can be invested and/or drawn upon in certain instances.
A final note for those with insurance through their employer is to be mindful that your policy may not be portable, i.e. cannot come with you when you leave your employer. In many circumstances, it is advisable to procure your own policy that isn’t tethered to your employment and that provide limits above what the employer provides, which is often inadequate.
That decision of which type of insurance is right for you can be very nuanced and based on your individual circumstances, so it wouldn’t be appropriate to speak to any specific situation.
You should consult with your tax, legal, and/or financial adviser prior to making any financial decisions.
Please consult your financial advisor prior to making financial decisions. Gary Parsons is a Financial Advisor with Waddell & Reed and can be reached at 850-894-9950.
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