The Cost Of Skipping Out On Life InsurancePerhaps you believe you're saving money by not paying life insurance premiums. While that's understandable, you're actually taking a big risk with this approach. And your family members could pay a big penalty for your lack of such a policy. A life insurance policy can be the bedrock of those plans.
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Perhaps you believe you're saving money by not paying life insurance premiums. While that's understandable, you're taking a significant risk with this approach. And your family members could pay a big penalty for your lack of such a policy. A life insurance policy can be the bedrock of those plans.
The Burdens of Death
In the event of a person's untimely death, the financial toll on family members can be steep without life insurance. To start with, the average cost of a funeral is $7,000.
If the deceased was employed and married, the widowed spouse must deal with the sudden loss of income. At the same time, he or she has to keep up with the monthly expenses, including food, utilities, and, if applicable, mortgage and car payments, to name a few. This financial strain, coupled with grief, could turn into a lasting depression.
Moreover, after the death of a parent, a family might use their savings to avoid a home foreclosure or car repossession. It can be a real struggle to stay afloat. College funds and retirement accounts may decimate in the process. It's scary to consider.
Life Insurance Can Be a Lifesaver
It makes sense to purchase a life insurance policy as a healthy young adult. That way, you can take advantage of lower rates. By contrast, if you were to face a severe medical problem in later years, your life insurance costs could go up significantly and abruptly.
Then, when you pass on, your life insurance policy could pay off some or all of your outstanding debts. As a result, your family can inherit all of your assets. Those assets won't get sold off to reimburse your creditors.
On top of that, some life insurance policies offer accelerated benefits. Those benefits go to people who become terminally sick or who face a life-threatening injury. They often let patients obtain the best possible medical care.
Two Major Options
There are two primary types of life insurance policies. A term life policy, which typically costs less, lasts for a specific duration. If you're still alive when that period ends, you won't receive any benefits from it.
For its part, a whole life policy will last you the rest of your life unless you terminate it. From the start, it guarantees its benefits and premiums. And, at some point, you'll be able to borrow against its cash value if you buy a new asset such as a car.
Thus, this policy can help you build wealth. Better yet, if they so choose, your children and your grandchildren will be able to use it as collateral. For their sake, it'd be a shame to pass up such a deal.
You can even set this policy up, so you make one payment per year for a certain number of years. When that time expires, you'll never have to make another payment, yet the policy will remain intact for the rest of your life and beyond. Its value will keep increasing as time passes, too.
There's another significant aspect of a whole life policy. If a person passes away before making all of the payments, his or her family still receives the entire death benefit. Imagine that a 30-year-old man takes out a whole life policy, and structures it so he'll pay $4,000 per year for 25 years. The death benefit, then, will amount to $100,000.
Now let's say this person tragically dies in an accident at age 39. As such, he only made $40,000 in life insurance payments. Nevertheless, his family will still inherit $100,000, and that money can't be taxed. Had that man put the $40,000 in the bank instead of securing the life insurance policy, his family would be about $60,000 poorer. To them, that sum might mean the difference between solvency and bankruptcy.
With all of this in mind, a whole life insurance policy that amounts to your annual salary times 5 or 10 might be ideal though people's financial situations differ. You must take into account how much debt you have, how many children you have, your spouse's income, your family's average monthly expenditures, and the value of your current assets, among other factors.
Don't Fear the Future
You can and should discuss these options with a financial adviser or another expert. You'll have to decide how much coverage you'll need, your payment schedule, the amount of each payment, and your death benefit. Naturally, the more that you pay, the higher the profit. Yet you don't want your fees to be so high that they'll negatively affect your overall financial condition or that you lapse on your payments.
In the end, life insurance needn't be expensive at all, especially if you're healthy and relatively young. And, given the financial protection, it can bring your family and the peace of mind it can bring you, it's well worth the investment. If you lack this insurance, after your passing, your family could be devastated in more ways than one.