September is Life Insurance Awareness Month. Life Insurance is not one of those fancy things you want to go out and buy, but it is absolutely necessary. Here is why….
Take getting married for example, once you are married many of your finances are combined. You make joint investments, such as buying a house/condo. With such large joint investments, it would be difficult for just one of you to make all the payments. This is why life insurance is so crucial. Even if both of you have life insurance through work, it is also smart to buy a separate policy for each of you. If one of you loses his/her job, all the money invested into the company life insurance is gone. You don’t have life insurance anymore. On the other hand if you are putting money into personal life insurance policies it is always there.
How much life insurance do you need to buy? Many times people only buy 4 times his/her annual income, when in reality you will probably need closer to 10 times your annual income. Think of all the expenses life insurance needs to cover: funeral costs, mortgage, car loans, credit card debt, taxes, education, retirement, and list goes on. An equation you can use to help determine your life insurance needs is:
current and future financial obligations – (spouse’s earnings, savings, investments and life insurance already owned) = amount of life insurance
There are two main types of life insurance: term and permanent life insurance. As the name implies, Term Life Insurance is for a specified term or time period. Policies can range from 1-30 years for a term. This type of life insurance is relatively inexpensive because it does not build any cash value and it just ends when the term expires. The payments are at a fixed rate until the end of the term. If future life insurance is needed, the rate will most likely go up because the person buying it is now older (an influence on the rate of a policy) and could have health issues that were not present when first buying the term insurance. If the purchaser does die during the term of the policy, the beneficiary will receive full payment of the policy. This type of life insurance can be used for the purpose of covering a mortgage. If you have a 30 yr mortgage, you may buy a 30 yr term policy just to cover your mortgage payments if you die within that time period.
Permanent Life Insurance, such as Whole Life, will initially be more expensive. However, the rate on the policy will not change regardless of any changes in health or occupation, as long as timely payments are made. A significant difference from Term Life Insurance is that Permanent Life Insurance will build up cash value. Over time, the policy value will be increasing by more than the actual premiums. The owner will have access to this cash if so needed. In the end, Permanent Life Insurance will be more cost effective and provide a better solution to family planning.
During Life Insurance Awareness Month, please review your personal and family needs for the future. Call us at Mancuso-Nowak to help set up a policy or ask questions.