People purchase life insurance because they love someone. Life Insurance is for the people you leave behind. No one has a lease on life. It’s not a matter of if. We are all just passing through this life.
Life insurance is the one thing you can acquire that will complete those promises you made to people you love. It can provide the dollars that you would have if you could have. No one has too much life insurance, I have never seen a widow turn down a life insurance death benefit. But you can have too little life insurance.
How much life insurance you need depends on what you want to protect. Most people should have 6-10X their income in coverage, depending on debt, education for family members, survivor income requirements, charitable bequests, or protecting a business.
There are three basic kinds of life insurance:
- Term Life Insurance – designed to provide protection for a fixed period of time. You have a debt for a certain number of years like a home mortgage or income to your family while their are children at home, or a college education. Term life is inexpensive as most people do not die owning it. The term life insurance expires before they do. It is NOT life insurance to cover you for your life time.
- Whole Life Insurance – designed to provide protection for your entire life time. Whole life is not unlike purchasing a home rather than renting one (Term Life). When you rent, you don’t own and someday you will have to move out. With Whole Life you pay a bit more on the early years so you can stop paying later when you want to stop paying premiums. I prefer Whole Life insurance that pays an annual Dividend because of the additional flexibility that comes with it. If you want to have some life insurance to cover you for your entire life, that is what Whole Life is for. Level Premium that you can stop paying on in the future and still own it. Whole Life Insurance provides a guaranteed cash value as the basis of it’s guaranteed death benefit. This money is available to you. You pay more when you are younger during your earning years so you can pay less or nothing when you retire.
- Universal Life – Between Term Life and Whole life is Universal Life. If you pay a Whole Life Premium, it will work very similar to a Whole Life product. Although it does provide a bit more flexibility of skipping premiums or putting more into it than Whole Life does. But it does NOT offer the guarantees of Whole Life. If you want a term product with a guaranteed level premium to age 100, certain companies offer a Guaranteed Premium Universal Life. But you have to pay premiums for your entire lifetime, unless you prefund it with more cash.
- The best kind of life insurance is what you own when you die. Many people have some of all three kinds for different needs.