Beginners Guide to Life Insurance

Fill your bucket before you kick your bucket.

Life insurance can be a daunting task for any person. We all want to procrastinate our life insurance decisions for a couple of reasons. The first and obvious reason is simple. Who wants to plan items related to their own death? Next is the salesman. The guy who treats life insurance coverage like a used car. Yes that guy who wants you to buy the Cadillac plan of life insurance like anything less is not loving your family. Well, lucky for you we have blazed the trail for you. Take a look.

Your employer has an insurance plan. Most employers have insurance death benefit of 1 to 2 times your annual salary. This plan is usually automatic, but ask your HR department if this is the case at your office. This amount should be enough to bury you and have a decent service. It is not enough to pay off a house, or put your children through college after the fact. It is a good start. Keep in mind this is only good if you are still employed at that office, so when you quit it does not move with you. That is why you will have to buy a third party plan.

Younger is better. Look at your body mass index. Stop smoking if you ever started. Evaluate your hobbies. Do you race a car at the weekend dirt track? Are you an avid pilot? These are simple things to keep in mind for lower cost long term coverage. More risks equals higher payments. These are all reasonable things you can control as well. If you are close to an ideal body mass index for your age, you may want to put off that insurance purchase physical until you meet that goal. It may save you $10 a month over a several year stretch.

Don’t let a sales person talk you into anything. Let them inform you about things you want answers to.

Term life is the way to go if you are able to have a plan. Let’s say you have a house payment, two car payments, and not a very big savings account. You can buy a term life plan to last 20 to 30 years for a reasonable cost for a large amount of benefit. Check your Labor Union if you belong to one. The NEA Teachers Union for example offers $300,000 coverage for as low as $15.08 a month for non-smokers.

Many people think term life is throwing away money if you do not die in that time frame. Let’s go back to that plan part. You need to pay off that house in that 20 to 30 year term plan life. Do not refinance every time you want a new car or want to role in another credit card that you maxed. Term is the inexpensive way to get enough to pay off all of your debts, bury yourself, leave some for your spouse to live temporarily with the loss of income, and possibly help put a kid or two through college.

Let’s look at whole life. Your parents may have started a plan when you were younger. It is a modest plan and you can take it over when you are older. So you do. For about $60 to $100 a year you have a $10,000 whole life policy. This is enough to maybe bury you. You can actually cash it out when you are alive. Borrow money against it. If the market is good enough for the firm that has it, you may not have to pay anything for it. It matures and pays its own premiums. It is an investment that does not go away until you use it in death or cash it out in life. It sounds great. Now try to up that coverage for the house loan amount. Rates go up drastically at any age, but even more for each year in your age. Remember as well we are talking about a plan that started when you were young. Try starting a whole life policy late in life. It is costly.

Special Needs Trusts are a huge consideration if you have family members that will need long term care after you exit the world. If set up properly, you can leave a child or spouse hundreds of thousands of dollars without cutting into social security or medical benefits from the government. These benefits from the government usually require the loved one’s estate to be less than a livable wage per year for them to kick in. If you leave a death benefit to a special needs trust it does not count as income. It is held by the trust partners, usually people you know and trust to make decisions for your loved one. They cannot access the funds for personal use, nor does the money spent on your loved one’s medical care and housing count as income. They can have a quality of life that you want them to have. This has to be done the legal way. It will usually take a trust lawyer.