Term Insurance

Life insurance is one product most people do not like to buy or purchase. The reason for this is that most people do not like to talk about death, especially their own. If we don’t talk about it maybe it will never happen seems to be the common train of thought. However, as the saying goes “there are only two things in life that is certain: death and taxes.”

Do You Need Life Insurance?
First of all you need to answer several questions to figure out if you need life insurance.
1. Are you married and have children?
2. Are you married with no kids, but depend on each other’s income to pay your house and other expenses?
3. Do you plan to be married at some point in time? (If over age 18)
If you answered yes to any of these questions then you need life insurance. Even if you think you will be single forever then you still have to think of the costs involved in dealing with your burial.

Best Type of Life Insurance = Term Insurance
For many people the best type of life insurance is term insurance. Term insurance pays a fixed amount of life insurance and your premium or rate is locked in for a certain term or years. So you know exactly what you will pay every month and you know exactly how much the insurance company will pay out once you meet the requirements of the policy (e.g you die).

A common type of term life insurance you hear about is a 20-year term policy. What does this mean? The insurance company will lock in your rate for 20 years and your coverage or death benefit is the same for 20 years. For most people twenty years is enough time to get their finances in order and get some money behind them.

Buy Term Insurance In Increments
You can buy a twenty year policy now and then buy another one in a few years. If you have no children right now and can only afford $100k of cover that is fine, in a few years when you have more responsibilities (and hopefully more money) you can buy an extra policy. This extra policy can be for either the same twenty years or a shorter term so the policies all run out at the same time.

These are sometimes known as top up policies.

Life Insurance is Income Protection Insurance
For example, you determine you need $250,000 of life insurance protection to protect your family. You purchase a 20-year term insurance policy because your youngest child is 4 years old. The reason for a 20-year time period is in 20 years hopefully all your kids will be moved out and on their own.
Term insurance is meant to do one thing for a family: Protect the income of a spouse replacement. If a spouse passes away the family still needs that income to continue to live the same house and go to the same school. No one can replace the parent or spouse who passed away, but you can replace the income the family needs to survive.

Follow the Advice of Experts on Term Insurance
Most financial magazines and advisors recommend people should have at least 6 to 10 times their annual after tax or take home pay in term insurance. Take home pay is the amount of income each is bringing home to pay their bills and living expenses. . If you bring home $50,000 a year you should have between $300,000 to $500,000 of life insurance.

It is sad when you read in the paper about some 35 year old killed in a car accident. By reading the obituary in the paper you can figure out the family did not have life insurance. Usually you hear about some spaghetti dinner to raise money for the family.
The reason is the family did not have life insurance and now the family has to figure out how to pay their bills. The family would not have had to worry about such matters if they took one or two hours to figure out how they can protect their family for the next 20 or 30 years. That’s it 2 hours to protect your family for 30 years with a term insurance policy.

How Many Years of Coverage?
Term insurance does not come in only 20-year terms. Most companies offer a 10, 15, 20, 25 and 30-year term coverage. The best is to lock in your rate for as long as possible. If you are 25 to 40 years old you should lock in a 30-year rate if you are eligible.
The reason is you at least know your rate and by age 55 to 70 you should have saved enough assets not to need the entire amount of life insurance.

Do You Have Kids?
To wrap up, if you are married with kids you definitely need life insurance. Raising children together is expensive and hard work, for your spouse or partner to raise them alone when you are gone will be even harder. Having money will never take away the pain of losing you but it will at least mean they do not have to worry about all the bills as well.

A good solution is a term insurance policy. The term should be at least 20 years and look to see if a 30-year policy is available.
Remember life insurance is meant to replace someone’s income. The amount of coverage needed is 6 to 10 times annual income.