Term life insurance is considered an important part of an overall financial plan. It creates an immediate estate for your survivors, allowing them to continue living without the burden of financial hardship. Coverage on the primary wage earner is a must at the very least, especially during their earning years while dependents rely on them the most. The following is advice to keep in mind regarding the purchase of a term life insurance policy for someone in their 40's with a family.
- make sure your purchase covers your needs
- purchase life insurance before you get any older
- purchase a policy with a ‘conversion privilege’
- ask friends and family for referrals
- pay your premium annually
- buy a policy and forget about it
- underestimate the value of a stay-at-home parent
- depend solely on work or group life insurance
- overlook the ‘Accelerated Death Benefit’ rider
Term life insurance is not just about replacing income, especially when you have a family depending on you. Factor the following into how much coverage you purchase:
2. Education funding for the kids (private school, college etc.)
3. Personal loans (vehicle, student etc.)
4. Consumer debt (credit cards and other loans)
5. 7 to 10 years worth of a wage earners annual income
Add those figures up and that is how much life insurance you should own, minus any assets and other coverage. When deciding on the term length of your coverage, consider this; how old are your kids? Typically a 20 year term plan is adequate to protect them financially as most of them should be independent at that point and have already graduated college or will be working. How many more years do you have to pay off the home mortgage? Surely you at least want life insurance coverage to protect your family for the home mortgage term.
I’m sure you’ve heard the saying before, “There’s no better time than the present”. Although that holds true regarding life insurance, the younger and healthier you are when you purchase life insurance the less expensive it can be. Optimally you want to purchase life insurance as soon as you have any dependents relying on you for support.
One of the most important features of a term life insurance policy is the ‘conversion privilege’. The ‘conversion privilege’ requires the insurance company to allow you to exchange as much of your existing term policy as you want for a permanent policy regardless of your health. No health exam or proof of insurability is required. Your new premium payments will be determined by the amount of coverage converted at your current age and at the health class for which you originally qualified. This feature is great for young families who want permanent life insurance in the future but currently can only afford term insurance for now.
Working with an insurance advisor you can trust is imperative, and it helps if someone you already trust, like a good friend, already trusts an insurance broker who can help. They will help you reach your goal of acquiring coverage and guide you through those tough decisions. When you have work and family obligations weighing on your shoulders, life insurance is often put on the back burner. However, working with an advisor will help you keep on track and get this very important task done.
When you pay your life insurance premium annually as opposed to monthly, you end up saving approximately one month's premium over the year. If a client is able to make an annual payment, I always recommend they do so.
After purchasing a life insurance policy, many individuals just file them away and forget about them. You should review your coverage annually allowing you to remain familiar with the type of coverage you have as well as how much. This is important to ensure you are aware of the length or term of your policy and its ‘conversion privilege’, as well as to make sure you have enough coverage or aren’t over-insured.
After all the various duties are added up, a stay-at-home parent can put upwards of 94.7 hours into a week and could cost around $112,000 per year to replace. Those contributions to the home may need to be made up by hiring day care, housekeeping, and other services.
The life insurance coverage you have through your work is a great supplement; however, it never replaces the need for an individually owned policy. Group life offered through your job is typically one times your salary or can be a multiple of it. Keep in mind you should have at least seven to ten times your annual income. In addition, if you change jobs you lose that life insurance benefit. Buying an individually owned policy allows you to lock in your life insurance rates. It’s best to buy personal life insurance early so you can lock-in those healthy and youthful rates to supplement your group coverage.
It’s human nature to lean towards buying things we want rather than what we need. It’s also no secret that people don’t want to think about buying life insurance and the potential of needing it one day. The problem is that any reason you may have for putting off the purchase of life insurance puts your loved ones at risk and will only cost more the longer you wait.
Most life insurance companies offer a policy rider called an ‘Accelerated Death Benefit’. In the event the policyholder is diagnosed as terminally ill (deemed to have 12 months or less to live) this rider allows the individual to take an advanced payment of a portion of the life insurance death benefit to pay for medical expenses or long-term care. The balance of the death benefit is then paid to the beneficiaries upon the policyholder's death. Requirements vary from company to company; however, this benefit rider is usually included on most term life insurance policies at no additional cost, but you have to request it.
Without adequate life insurance to protect your dependents, they will surely be left behind to fend for themselves while facing the burden of certain financial hardship. Term life insurance is the least costly way to provide a family with an adequate amount of life insurance during the years when they will need it the most. Ask yourself this: Why are life insurance death benefits tax free? We pay taxes on our income, and just about everything we purchase, but not on life insurance death proceeds. The reason is because the government wants to encourage all primary wage earners to own life insurance for the benefit of their family. Follow the tips mentioned above and you will be well on your way to providing your family financial peace of mind with life insurance in the most inexpensive and effective way possible, through Term life insurance.