Life Insurance

We are going to go against the general consensus of financial advisors and suggest that there is a place for whole life insurance most people.  Most advisors recommend people buy term life because there is no investment component and therefore it is cheaper.  They reason that you won’t require life insurance after you retire or stop earning an income.  Whole life has an investment/savings component that adds to the monthly price.  It sometimes carries a higher commission for the salesman as well.

The main reason we suggest some whole life is for your old age.  Term life insures your income, pays off the mortgage, pays for kids college expenses, pays for your funeral expenses, and provides survivors with enough money to live on without you.  A lot of these reasons for having life insurance are temporary.  You should eventually pay off your mortgage and finish raising and educating your children.  Some of these reasons for needing life insurance never end.

We suggest the first life insurance be a whole life policy for $100,ooo.  You should buy this when you are young, less than age 25, because it is cheaper.  Keep it forever.  Pick a company that has an outstanding rating and reputation.  Metropolitan, Prudential, Northwestern are 3 that are pretty good.  Most policies will eventually generate enough income to pay for themselves and buy the time you are 65 you should have that much life insurance without making a payment.  We have learned the hard way that, contrary to most advice, the need for life insurance doesn’t go away entirely when your kids are grown, mortgage is paid, and you retire.  Term life insurance is very expensive when you get older.  Around age 75 it is hard to get and prohibitively expensive.  Whole life purchased when young is cheaper in old age than term life insurance and can remain in force at all ages.

When you get to the end of your career and retire you should have paid off any debt, including mortgage debt, and completed with the financial obligations of having a family.  If you get a pension you can usually set it up so your surviving spouse will continue to receive the same amount after you die as you get while living.  All savings go to the surviving spouse.  That should mean you don’t need life insurance anymore, according to the experts.  After all you are really insuring your income not your life.  The truth we have found is there is more to living than income considerations.  There still has to be money for funeral and other final expenses.  This can be a burden on survivors.   If you are married you likely have divided up household chores by interests or abilities.  Traditionally, the husband took care of the yard and car chores and the wife took care of the household chores.  The division of labor has changed over time and whatever yours is it will matter if there is only one of you to do the work.  As an example; someone has to mow the yard.  If the spouse that has always mowed the yard is the first to die then the surviving spouse may have to hire it done.  The same goes for cooking, managing the finances, cleaning, laundry, shopping, and any other chore someone has to do regularly.  Remember this usually happens when you are old and even if the surviving spouse had taken care of this chore when young they may not be physically able to do so in later life.  Think of all the regular chores required to live and think about how these will be accomplished if one spouse dies.  It often requires more money for one surviving spouse to live than it did for both of you.

Use term life insurance for insuring income.  Buy extra when you have children.  Have enough to pay for your share of their expenses through college.  Buy some to pay your share of the mortgage.  Don’t buy mortgage life insurance or other type of debt life insurance.  It is decreasing term and not worth the money.  If you take out a $100,000 mortgage and only spouse works then buy $100,000 in term life insurance.  Review regularly and change it as the debt is retired.  If one spouse doesn’t work outside the home then the spouse who works will need to be insured enough to provide at least 5 years of income for the surviving spouse.  There may be other reasons to add some term life insurance as you go through life.

Following this suggestion can be expensive.  If you can’t afford this much insurance then buy less.  You can often buy whole life in $25,000 increments with guaranteed insurability to be able to add to it as you can afford it.  Don’t do without life insurance because you can’t afford whole life.  If you have a family then you need life insurance.  Buy term and then when you can afford it go ahead and buy whole life.

Finally, we did not receive any consideration from anybody for this article.  It looks like an advertisement for life insurance companies.  It is not.  It is intended to help you achieve and maintain your financial independence.

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