During my high school economics class with good old Mr. Polombo (one of the greatest teachers on earth), he taught some very valuable lessons about money, including the absolute truth. This truth I am referring to was when he stated:
“Class, there are only two certainties in life. Death and Taxes.”
I quickly learned when I picked up my first part-time job at 16, the government was going to get their money no matter how I felt about it. Mr. Polombo was right about this one, which is why I make sure I am always setting aside money for Uncle Sam.
As far as death – that also made sense (even to a know-it-all teenager). However, the one area of life that we know is going to for sure happen is also the same area of life where we do a horrible job of planning.
I’m Talking About Life Insurance
What is Life Insurance?
Before we dive into life insurance, let’s just first think about insurance in general. Here is my definition of it:
Insurance exists to protect our assets. This protection is providing value, which in return costs us money.
- We have health insurance to protect us from giant medical expenses that would otherwise bankrupt us.
- Homeowners insurance is there to replace our home if it burns down.
- Auto insurance covers the unexpected accident or injury to ourselves and others.
- Life insurance is a must to replace our income and the financial value we bring to our families in the event the unthinkable happens – we die.
If you were gone, how would your family pay the rent/mortgage, buy groceries, pay bills, and everything in between? Who would stay home with the kids, who would go to work, and how would the financial value you bring to the home be replaced?
This is why we must have life insurance as part of a solid financial plan.
Term Life Insurance
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Here is How Term Life Works
Term Life Insurance is simply life insurance that has a benefit upon your death of whatever amount your policy is written for. The word “term” means you are only going to have this life insurance benefit for a specific number of years. These terms are usually in 5 year increments and can be anywhere from 5 to 30 years.
The reason why I only recommend Term Life is because I don’t think you need Life Insurance for your entire life. I think you should only have life insurance for the “gap” between now and the time you are worth more than you insurance policy.
Think about this: If you had a paid for house, had zero debt, and had a large retirement nest egg, would you still need life insurance? Basically, could your family live comfortably off the financial stability you build over the next 20 – 30 years?
Of course they could.
However, in the meantime we need some insurance in place to cover that “gap”until we can build up our net worth. When you start living on a budget, stop playing with debt, and build wealth, eventually you won’t need life insurance.
You will be your life insurance.
When Should I Buy It?
Today. I don’t recommend waiting for the right time to buy life insurance, because truthfully, right now is the best time.
A few years back I met Valerie and she told me how her parents forced her to buy 30 years of Term Life Insurance when she was only 20 years old. At the time, she thought her parents were completely out of their minds, but today she shares her story in hopes others see exactly why it’s so important to get Term Life Insurance.
“When I was 20 years old, I purchased $500k of Term Life Insurance for a 30 year term. The monthly premium was $20 and I remember thinking I could do a lot more with that $20 than throw it away on some stupid life insurance policy. That was until right around my 23rd birthday when I woke up three days later after suffering from a brain bleed.
Today I am 35 years old, I’m an RN, a wife, and a mother of three kids. If I were to try to get life insurance right now, I would be uninsurable. Insurance companies don’t like to insure people who are high risk, which apparently I am. This is why I am so thankful that I had parents who forced me to go out and get life insurance when I didn’t think I needed it. They were right. Don’t wait another day to protect you and your (future) family.”
How Much Do I Need?
I recommend 10x – 12x your gross annual income or $500k for stay-at-home moms and dads.
Why 10x – 12x Your Annual Income?
Let’s say you earn $50,000 a year at your current job. If you were to die tomorrow, your family would receive $500k – $600k tax free. Now let’s apply this money to some areas of your life:
Your mortgage balance is $250,000
Your current revolving debt is $50,000
After you pay off the mortgage and the revolving debt, you are left with $200k – $300k. This may seem like a lot of money, but think about how long this will need to last you.
Do you plan on working full time?
If so, who is going to watch your kids?
What about your child’s future college expenses?
What about daily living costs?
Now you can see why I recommend a minimum of 10x – 12x your gross annual income.
Why $500k for a Stay-at-Home Mom or Dad?
If you plan on continuing to work, you’re going to have to find someone to replace the value for the spouse who stayed home. Basically, you’re going to need to hire Mrs. Doubtfire to watch your kids, and that costs money. A lot of money.
How Much Does Term Life Cost?
I partnered up with my friends over at Haven Life to make this as simple as possible. Instead of calling around a hundred different companies, Haven Life has done the heavy lifting for you. You’ll find affordable and accurate quotes for the top-rated life insurance companies. Follow the link below to see how inexpensive life insurance should be.
How Does the Process Work?
Once you fill out your application, you will soon receive a phone call to answer a few questions and then set up your paramedical exam. This is where a paramedical technician will come to your home or work and gather your blood pressure, pulse, height, weight, urine sample, and draw your blood.
It sounds like a lot, but my exam lasted a whole 10 minutes.
After your application is approved, you will receive your official policy via certified mail. As soon as you authorize the policy via your signature, you’re officially insured.
Commonly Asked Questions
Remember when they taught us about life insurance? Neither do I.
Here is a list of the most common questions I get when it comes to getting Term Life Insurance:
Should I Get Rid of My Old Policy?
If you have an existing plan, KEEP IT, until you are insured with the new policy. More and more people are buying Term Life and cancelling their Whole Life (Cash Value) policies because whole life insurance is absolute crap, costs way too much money, and is one of the worst financial products on the market. However, I definitely don’t want you to cancel your crappy insurance and then find out you are uninsurable. Crap life insurance is still much better and no life insurance.
How Does the Beneficiary Receive the Benefit?
As soon as the life insurance company has been notified that the insured has passed, the death benefit will be paid out in one lump sum to the beneficiary.
Is the Death Benefit Tax-Free?
Yes. The death benefit is paid out as a tax-free lump sum.
Are the Monthly Premiums Tax Deductible?
No. Please don’t get upset with the messenger, this is an IRS rule. 🙂
What if I Have Life Insurance Through my Employer?
I would simply consider this a bonus, but not a reason to forgo getting life insurance on the open market.
Employers typically will pay out 1x – 2x your annual salary to your beneficiary as an added perk to their benefits package. However, this still isn’t equal to the 10x – 12x annual income I recommend. Also, what happens when you leave your employer? You’re no longer covered and now you have to get life insurance at an older age, and at a higher monthly premium.
What if I use Tobacco Products?
You need to stop or it’s going to cost you A LOT.
The reason the costs go up is all based on actuarial tables predicting how long you will stay alive. Insurance companies simply don’t guess, instead they continually gather data and create rates based on your survivability.
On average, a tobacco user will pay 3x more per month than a non-tobacco user. This means their data suggests you are 3x more likely to die before that policy is up.
What if I Can’t Afford It?
Then you need to look at your monthly budget and see where you can cut back. A simple Term Life Insurance plan will cost around $400 – $500 year for an annual salary of $60k. The average car payment costs $5,800 per year, cable costs $1,440 per year, and dining out costs an average of $3,000 per year. You can afford it if you choose to.
Full List of Life Insurance Companies
As I mentioned earlier, I have partnered with Policy Genius which searches the among the top A+ ratings from the BBB for life insurance.
However, if you’re looking for an in-depth review of the top 10 life insurance companies to help make the best decision for you and your family, check out one of the absolute best life insurance resource I have found here.
Today, the amount of people who have life insurance is at a 50 year low. When I ask people why they don’t have life insurance, the number one reason I hear is that it seems too complicated. They’re 100% right.
This is why I decided to partner with Haven Life. They have the absolute best tool I have come across to help you get your own life insurance in the most efficient way possible.
With that said, I also want you to be fully aware that Haven Life does compensate me for any referral I send to them. This compensation doesn’t have an effect at all on your monthly premium, it is simply just a way for Haven Life to tell me thank-you for referring you to them
If this works for you, great! However, if this is not something you feel comfortable with, then no worries at all. Simply close out this browser and open up a new browser and Haven Life won’t know I referred you. I would much rather you have life insurance than not at all, but if you don’t mind the referral, I would greatly appreciate it 🙂
Do You Know Anyone Else Who Needs to Read This?
Life insurance ownership is at a 50 year low, and part of it has to do with people simply not understanding the who, what, why, and how. The last thing I would ever want anyone to go through is the loss of a loved one followed by extreme financial hardship. If you feel this post would provide value for someone else, please share this using the social media buttons above. There’s absolutely no reason to wait, you just never know…
Thanks for reading Money Peach,