This article was last updated on May 12
We’ve all heard that we should have life insurance but few of us take the time to learn about it and even fewer purchase a policy. The reason is obvious: We don’t want to seriously think about the conditions surrounding our own death. We don’t want to believe that there is a chance that our death could be untimely or during the prime of our lives and even worse, we don’t want to think about the fact that we could possibly leave our loved ones behind.
These are the very reasons that we should know as much about life insurance, how much it costs and how it can provide financial safety to our loved ones. Let’s look at why we need to get beyond our fears and face the subject head on.
A Common Scenario
Years ago you went on a first date and knew for sure that this person would be the person you would marry. She was perfect in every area and as you ran her through your personal checklist, you couldn’t find anything that threw up a red flag. You were right and you married her. You ended up having four kids and you each made the decision that she should stay home and raise your children instead of going to work.
Because you married young and had children soon after, your wife didn’t receive a college education but given your mutual decision, she doesn’t work. You make enough to support the entire family
Then something happened. You had been on a business trip and due to weather, your return flight was late and you found yourself driving home early in the morning. Before you could do anything to avoid it, a person driving on the opposite side of the highway lost control, came across the median and hit you head on. You passed away early that morning.
As if the grieving process isn’t enough, your wife has a lot more to worry about than just coping with the loss of her husband. The average cost of a funeral is $7,000 but it could be considerably more. Your company gave you a benefit package that had a life insurance policy worth $25,000. If you subtract the cost of the funeral, you’re already down to $18,000 plus the savings you may have. If you’re similar to the average American family, you don’t have a lot of money saved anyway.
If you never faced the thought of an untimely death, your wife is now left without a husband and without an income. With four children and no job skills, she doesn’t have enough money to hire a babysitter for her children and an entry level job for somebody without a college education isn’t going to pay enough to support five people. Your wife will have to apply for public assistance, sell your home (probably for a fraction of what it’s worth) and hope for help from friends and family. Her life is ruined.
Now that you’re convinced, what kind of policy do you need?
Life insurance policies come in two basic variants – whole life and term life insurance. Whole life insurance offers death benefits plus cash value (like an annuity), on account of which premiums are higher. On the other hand term insurance is more affordable because it only pays out death benefits. When you’re young with a lifetime of loans, expenses and mortgage payments to be paid, your children’s education and upbringing to look after, it’s probably better to consider the more affordable term life insurance. Since a term life policy can help you focus on just the death benefits, it makes sense to understand it better, and work out the best coverage to premium amount possible.
Insurance salespeople are respected about as much as used car salespeople so you’re probably not inclined to take their advice at face value. USA Today recently interviewed a number of insurance industry professionals and some common themes they found . First, they advise to not trust your employer for your life insurance needs. It isn’t enough to sustain your family for even one year after your death. Most people don’t get enough coverage. For a thirty something person earning $100,000 per year, a $3 million dollar policy is recommended.
Next, many people believe that if their spouse is a stay at home mom or dad, they don’t need a life insurance policy because they aren’t contributing financially to the family. This isn’t true. If they weren’t home to take care of your children, you would have to pay a babysitter or quit your job and stay home your self.
With the average cost of day care approaching $9,000 annually per child, depending on the ages of your four children, your spouse was essentially contributing $36,000 to the family income. A stay at home spouse doesn’t need the same amount as you, though. Experts recommend a $1 million policy.
Nobody wants to think about their death but as we age, more and more people rely on us to live their life. If we don’t think about it, we may severely affect the quality of life for those who rely on us for financial support. Take the first step and get a free life insurance quote to understand the costs and coverage options you can get.