If there is anyone in your life who relies on your income, you need life insurance. That obviously includes any young children and your spouse. It can also include your parents if you help them cover their bills or pay for some home-based care. It can even include a sibling or a friend for whom you provide financial support.
Therefore, for most of you, if the primary purpose of your life insurance is to protect young children you anticipate will grow into independent adults, then you probably do not need a policy that is longer than 20 to 25 years. Same goes with life insurance for a spouse or partner; chances are you only need to provide the protection until the assets you both have accumulated have grown large enough to support the surviving spouse if one of you should die prematurely.
The wise way to find out how much life insurance you need to purchase is to add up the annual living costs for your dependents, or your annual contribution to them, and then purchase a policy that is 25 times that sum.
That is not nearly enough. To fully protect your loved ones and make sure they never have financial hardship, my advice is to consider a term life insurance policy that is at least 20 times (25 times is even better) the annual income that you need to be replaced.
You can get a quick sense of your potential premium costs at the term4sale.com website. Sites such as Selectquote.com and Policygenius.com sell life insurance. Yep, you can buy a policy right from your computer. Even if you need a medical exam, most insurers will send somebody to your home to check your vital signs and maybe draw blood for basic testing.
The Financial Empowerment Plan included in the new version of Women & Money includes an easy-to-follow questionnaire that will tell you if you need life insurance and walk you through how to find the right policy with the right amount of protection for your loved ones.
But I want to stress right here, that buying life insurance need not be hard, or scary. You will be so relieved knowing you have taken care of those you love most. And you will be amazed how affordable it is if you follow my advice.
5.Term life insurance is affordable. The annual premium will be based on your age, your health, the term of the policy, and the size of the policy (how much it will pay out if you die during the term.) My main message to you is that this is far more affordable than you think.
Suze believes that permanent life insurances such as whole life or indexed universal life (IUL) are bad investments, much like other financial entertainers such as Dave Ramsey. In her opinion, she feels you would be better off investing the money you save by buying cheaper term life, than by investing in life insurance.
As a result, her position in this regard has been criticized by some insurance experts as too simplistic. Her advice to investors to fire their advisors if they recommend whole life insurance, or other types of permanent coverage, also seems extreme.
Granted, the initial cost of setting up term vs whole life would favor term life insurance, but over a lifetime, whole life insurance costs much less than term life. The historic internal rate of return of a properly designed whole life policy can typically be between 4-6%. That is your money growing over your lifetime, that can be accessed tax free via policy loans.
Agree with them or not, all you have to do is listen to them speak out against whole life insurance to hear the obvious bias both Ramsey and Orman have towards whole life. They unequivocally state that they hate whole life and anyone who recommends it is not looking out for your best interest. And they never once mention any of the many benefits of whole life insurance.
Given her past embrace of whole life, however, it makes sense to be skeptical about her blanketed pronouncement against whole life. While in her role as a financial guru for the masses she decries whole life, the fact that she was a proponent of the insurance product when she worked with investors on a face-to-face basis bolsters the case for taking her current advice to stay away from cash value life insurance with a grain of salt.
While buying term life and investing the difference may work for some investors, for others the benefits associated with purchasing whole life and other permanent life policies make buying such policies well worth considering.
Interest paid on your principle held in the cash value account of a permanent life insurance policy grow free of taxes, allowing you to achieve true compound interest growth. All else equal, this enables such funds to grow more rapidly than if they were in a taxable account.
The ability to access the cash account via partial withdrawals or policy loans: Whether you choose to take a partial withdrawal from the cash account or a life insurance policy loan, you can access your funds tax-free up to the amount you contributed to the account.
If you purchase term life and let it expire after a certain period of time, any assets you leave to your beneficiaries will typically be subject to potential taxation, whereas life insurance proceeds are tax-free to recipients.
Both IUL insurance (indexed universal life) and VUL insurance (variable universal life) offer the chance to earn interest based on the performance of various stock market indexes. In the case of IUL, the amount your account is credited is typically limited by cap and participation rates, while VUL subaccounts invest directly in equity securities, so there is no such limitation.
When using cash value life insurance as a savings or investment vehicle every effort should be taken to avoid having the policy classified as a MEC (modified endowment contract), which would make any withdrawals taken from the policy taxable. Most such policies are designed to avoid this, nevertheless it is still a good idea to check and ensure that this is the case with any cash value policy you are considering.
For example, if you have reached the limits of what you can contribute to a tax-deferred retirement plan such as a 401k or SEP-IRA, cash value life insurance can serve as a means of setting aside further funds for retirement.
Another situation in cash value life insurance offers advantages over buying term life is the added degree of predictability it offers. If you buy term and invest the difference your investment performance certainly may be better than you would have achieved in a whole life or IUL policy, but it could also be worse. Dividend paying whole life has historically offered highly competitive interest crediting rates when compared with other higher risk cash-equivalent investments.
I&E was created by a group of estate planning legal professionals and life insurance agents who, after spending years working for various groups, including larger nationwide insurance brokerages, realized that people really do appreciate being able to find affordable life insurance policies and other related products and strategies from the comfort of their very own home.
Disclaimer: This post is for informational purposes about term life insurance and in no way implies that Dave Ramsey, Suze Orman, or Clark Howard have endorsed Bestow. Content sources are linked throughout the article. Views presented in this article are the opinions of Dave Ramsey, Suze Orman, and Clark Howard and do not represent the views of Bestow or its partners.
Suze Orman recommends term life insurance for pretty much everyone who needs to cover expenses for a set period of time: parents with young children who need support until they become independent adults, if you have a spouse or other loved ones who depend on your income, or if you have a mortgage that needs to be paid.
Term life insurance is easy to buy, easy to own, and cheap. This is why he recommends it for both working and stay-at-home parents , and why he prefers that you get your own policy and not depend on life insurance through work.
The traditional way of applying for a life insurance policy can involve medical exams, lab tests, and in-person interviews. With this traditional underwriting process, you might find yourself waiting up to a month to get a decision.
One key difference, though, is just how much life insurance coverage you can get. Simplified issue insurance typically caps off around $100,000 (although some life insurance providers do offer more coverage). Plus, a simplified issue policy may have graded death benefits, which means that your beneficiaries only get the full value of the policy if you pass away at least two years after you purchase.
Generally speaking, healthy adults between the ages of twenty-one and forty-five may be eligible to buy a term life insurance policy online. (Bestow can underwrite policies for individuals ages eighteen to sixty, for terms of ten to thirty years, if approved.)
However, there are certain criteria that may prevent you from purchasing a policy without a medical exam. If you have a serious medical condition (such as heart disease, cancer, kidney disease, or blood pressure issues) or risky hobbies (like hang gliding, for example), you might need to speak to a licensed insurance agent to help you find a life insurance policy that fits your needs.
The payout is typically tax free, and many view it as income replacement. Others plan for it to cover daily living expenses, a mortgage, or even fund higher education. You can name nearly anyone as your life insurance beneficiary and they can spend the money however they need it.
The terms of a small business loan often require life insurance, but having coverage can also solidify a commitment to employees, business partners, and small business cosigners, whose livelihoods may depend on your contribution to the company.
Even if you were offered life insurance through work, that typically vanishes when you leave a job. Many retirees live on a fixed income and when a spouse or partner passes, a life insurance policy can ensure the ot