Disclaimer: My intention here is not to insult or hurt anyone, but GoFundMe is NOT a life insurance option!
Purchasing life insurance is a conscious choice to protect the ones you love and pay off any debt you owe. This includes your last wishes for burial, cremation, or even becoming a diamond. It really bothers me when I see a GoFundMe for the final expenses of a person who died. What I see in that situation is an individual who didn’t handle things responsibly. We all have some type of indulgence that we spend money on. Spending money on these items is a choice we make. Most of the time you could purchase life protection for your family for the same cost as one of those treat items. For instance, I love Chic-fil-a minis and unsweet tea. When I buy this breakfast of champions, the total cost is $5.27. If I bought this meal 3 times a week, I would spend $15.81 or $63.24 a month. How much life insurance could be purchased for $63.24 a month?
Life insurance is one of the most misunderstood and under-utilized products in our country. An older insurance person told me it is called life insurance because “who would buy it if you called it death insurance.” How true is that?
Of course, life insurance is for the living (commonly referred to as “loved ones”) and not the deceased, but it definitely shows the feelings of the deceased for those remaining. If you truly care about your family, you want them to maintain the quality of life they had before your death.
Who Will Take Care of Your Family?
It never ceases to amaze me when I am talking to young couples with one primary breadwinner and one caretaker who stays home to take care of young children, they are almost in total denial of the issue. I ask “Who has your life insurance?” and the standard answer is, “I have it at work.” I then ask, “How much life insurance do you have at work and can you take it with you if you change jobs?” Surprisingly, the answer is, “I don’t know.” Life insurance at work is gravy on your grits, but you need a big bowl of your own grits!
This reminds me of a woman who called our office to purchase insurance on a new home after her husband died. She said she had a separate life insurance policy for her, but she could never get him to purchase one because he “had it at work.” He had cancer and after 6 months could not work. He lost his job and his life insurance at work. She had to borrow money to bury him and had to sell the house because she could not afford it. She had to downsize because he didn’t take the time to take care of her.
Who do you think will take care of your family if you don’t come home one day? What will your spouse and children do? Do you want to protect your family’s lifestyle if something happens to you? Losing a loved one is a terrible, difficult ordeal and having financial worries on top of emotional ones only exacerbates the situation.
In every new business meeting we conduct, we ask about life insurance and show a proposal for the mortgage debt. So many of our clients decline this coverage without a thought. Simply ignoring a decision doesn’t mean it isn’t going to happen.
How Much Do You Need?
How much life insurance do you need? There are many ways to calculate the amount of life needed but a very simple way is the LIFE way.
Loans: Total amount of car, credit cards and mortgage debt you owe
Income: Recommend at least 5 times your annual salary
Final Expenses: Buried ($12,000) or cremated ($5000)
Everything else: Education for kids, charitable donations, anything you want
Total each category, add the them all together, and this gives you a good idea of the amount of life insurance you need.
I am a firm believer that some life insurance is better than none. Helping your family for a short time after you are gone is better than not at all. We usually calculate the LIFE analysis and then run some proposals for our clients. Buying more than you can afford is as bad as not buying in my opinion. If you are too tight with your premiums and things get tough financially, the life insurance is the first thing to go. I have seen this scenario numerous times. You must be committed to protecting your family and sacrifice other items in the budget to keep your life insurance. How about giving up a meal out at a restaurant, not getting your nails done one week, or the junk food at the convenience store, etc.
Life insurance also has many benefits while you are living. If you are diagnosed as terminally ill, most policies allow advancement of the death benefit when needed. This money can be used as income replacement, for medical bills, or anything else needed. I’ve seen this save many families when one spouse becomes terminally ill and the other spouse wants to spend time with them and not work. Life insurance funds allow this special time without financial stress
Long-Term Care coverage provided by many life insurance policies is popular. When you purchase long term care coverage and don’t use it, all the premiums you paid in are lost. With life insurance, if you don’t use the long-term care rider, you will still have the death benefit. This is a very efficient way to handle long-term care needs.
If you own a permanent form of life insurance, you can also borrow money from your account. And you can do this without completing a loan process at the bank.
Term, Universal, and Permmanent
The most common types of life insurance are term, universal life, and permanent life. Each is appropriate in a specific situation. The only way to collect term insurance is for someone to die. You can have a 10, 15, 20, 25, or 30-year term policy. If you die within the “term”, someone else receives a benefit! Term life is usually good for young families who need the death benefit for a cheaper premium.
If you are a Dave Ramsey disciple, you believe only in the power of term insurance. I am NOT a Dave Ramsey disciple because I see so many people say they are following the Dave Ramsey way and only participate in part of his program. They buy term insurance, don’t invest enough, have debt at 65, and cannot afford the term insurance at that age. I see it every day. Life gets in the way and people do not pay off their debt.
Believe me, insurance companies make more money on term insurance than on permanent life insurance. I see so many individuals out-live their term life insurance. I had a new client come to my office because his term policy had expired. He was 42. An agent, not a very good one in my opinion, sold a 32-year old male a 10-year term policy. I asked this client, did you think you were going to die before 40, and he said no. I asked why he bought a 10 year term. He said the agent said it was cheap. He didn’t like the new premium 10 years later, but we did write it more than 10 years.
Universal life (UL) allows flexibility with premiums and if funded correctly, can provide insurance for the total years of your life. This is where a great agent comes into play. If a universal life is improperly funded, all you have purchased is an expensive term policy.
Permanent life insurance (PLI) can protect you until your death date. It has many living benefits as well. PLI can provide long-term care, terminal illness riders, and the ability to withdraw against your policy without paying taxes. Using part of the IRS code that is over 100 years old, one can purchase PLI and withdraw the funds without having to pay taxes on the withdrawal. How would you like to retire without having to file a tax return?
When To Buy?
The best time to buy life insurance is when you are young. You purchase life insurance with health. Yes, you must be able to afford the premium, but your health is what makes life insurance available for you. The older you get, the harder it is to qualify for life insurance, and you can have disqualifying events. Also, your health and rates are better when you are younger. I can personally attest to this because I have been trying to lose 25 pounds for the last 3 years, and it is so hard to do. This extra weight definitely influences my life insurance premiums. The saddest conversations I have are with clients who have refused to purchase life insurance and then fall ill. Everyone wants life insurance after the fact; when they cannot qualify for it. Unfortunately, it is too late to purchase at that point in life. My best advice is to buy it early and keep it.
Speaking of buying it early, purchasing life insurance for your kids or grandkids is one of the best gifts you can give them. With the numbers of juvenile diabetes and cancer among kids, you don’t know that your child will be able to qualify for life insurance when they are older. Buying it when they are young insures their insurability. I recently had a friend whose mother-in-law died. The monther-in-law had a policy on her son. The son had not been able to qualify for life insurance and only had life insurance at work. His mother gave him a great gift at her death—the gift of life insurance that she had paid for 40 years of his life.
Being responsible for your family includes life insurance in most instances. Making a decision early to purchase life insurance can be a life changing decision for your family at your death. Not purchasing life insurance doesn’t keep you from dying, but it can drastically change the future for your loved ones. After all, one of the main reasons you have life insurance is so you don’t leave your family with debt.