Since this week is all about showing love, let’s talk about one way that you can take care of those you love, even when you are no longer physically here to do so.
Life insurance.
Do you have it?
Do you need it?
I am amazed at how many people set up fundraisers for people who have died and do not have a plan to cover their final expenses and/or care for their minor children.
It may sound harsh, but I have little empathy for these fundraisers.
I purchased my first life insurance policy literally two hours before my daughter was born. On an E-3 salary, which is less than minimum wage.
I treat it like auto insurance. It is a non-negotiable.
When she was younger, it was a way to ensure that our home and any other outstanding bills would be paid for, as well as maintaining the property until she was old enough to decide what to do with it, plus an extra amount for a lawyer to ensure she could live with who she wanted.
Now it is to also pay off any outstanding debt and final expenses and give her options, although we are now at places in our lives where I could reduce the payout…
So, what is the best option for you?
First, there are seven main types of life insurance:
1. Term- this is often paid monthly, with premium increases every X years, depending on how long your rate is locked in for. The only cash value is when you die and it does not build any value. This tends to be a low-cost option.
2. Whole- these policies are a little more each month. There is a payout upon death, but it will also build up a “cash value” that you could take a loan against in the future. Premiums are consistent.
3. Universal- think of this as a hybrid of term and whole. Premiums are fixed, but there is little or no cash value.
4. Indexed Universal- the cash value component is linked to a stock market index fund. There are usually caps on gains, but the worst case scenario is a 0% return if the index has a loss. These are a little more complicated, but could be worth considering.
5. Variable or Variable Universal- the cash value is tied to an investment account (ie: bonds, money market, equity, etc). You will need to be more hands-on in managing your policy and there are fees/admin charges, but high risk means the potential for high reward.
6. Final Expense- this is just what it sounds like- insurance to cover your final medical costs, funeral, cremation, and any other costs directly associated with your death. These policies are only available to specific age ranges and tend to have a cash value component. Coverage is usually for small amounts- $5,000 – $25,000.
7. Group- this is usually through your employer. The employer chooses the benefit amount (often $50,000) and pays the premium and you choose your beneficiaries.
Next, you have to decide which is best for you. As with everything else this will require you to do some homework. Research the different types. Have conversations with some local brokers. Check out online calculators. Look at what expenses you would have to cover if you were to die. This could be anything from loans to child care to supporting a spouse to, well, you name it.
As you build your assets and savings you may find you no longer need life insurance.
But, please, whatever you decide, do not leave your family setting up a fundraiser because your coffee habit was a higher priority than your responsibility to them.