Life Insurance and the Legacy of Your Life
What do you want your legacy to be? When the curtains close on your stage, what will you leave behind?
Most people don’t like to think about their own death. There may even be a whole lot of avoidance or fear around it. But the reality is that one day, all of us will leave this earthly plane and depart our bodies. The question then becomes, what are we leaving behind?
The memory of you will of course live on in the hearts of those you have touched. But will the grief of your passing come paired with a crippling financial burden for your loved ones?
Will they have the money they need to pay for your funeral, sort your debts, and carry on the causes you cared about? Or will your children or spouse be left at a devastating loss without the financial support you brought in to the household?
This is why life insurance exists, and why it’s so important.
Life insurance is something that everyone needs to have. But specifically, for those who want to be able to take care of their loved ones even after they have passed on.
It allows for us to leave something behind for the people we love. Life insurance gives us the ability to provide gifts, leave a legacy, give our kids a kick-start at life, and even provide an avenue for building wealth or create income for our own retirement.
Something also that is really important to keep in mind is that you can’t depend on the life insurance that’s provided through work. These kinds of life insurance policies are not as safe as people think. Mainly, because it’s tied to your employment. If anything happened to your job, or if the company goes down, or you change companies, you lose all of the benefits you had.
You should always have your own life insurance beyond what your employer provides.
But what are the options? Let’s take a look at the different types of Life Insurance.
Types of Life Insurance
There are 2 main categories when it comes to life insurance. Permanent and temporary (also known widely as ‘term’) life insurance. Let’s look at the latter first.
Term Life Insurance (Temporary)
Terms life insurance is called as such because these policies last for a set amount of years. Typically in 10, 20, or 30 year terms. When your term comes to an end, your coverage ends.
This type of life insurance is best for those who are young, and have dependents (or are planning to have kids). It is the most affordable type of insurance for the kind of coverage you will have access to in the case of your death, if you die within the timeframe of your term.
Term life insurance covers short term needs such as
▣ Burial expenses and funeral
▣ Debt payments
▣ College education for your kids
▣ Income replacement (Especially important if you have children under 18, or a spouse who is dependent on your income)
The best part about term insurance is that you get a high death benefit (all of the things listed above) for a fraction of the price of permanent life insurance policies. However, it doesn’t build cash value (we’ll talk more about this when we talk about the permanent options).
Term insurance is also best fit for those who are on a budget, with a young family or are planning to have a family soon. You definitely want to have coverage for the years your children are under 18, and perhaps also into their college years as well.
Also best for single individuals who do not want to leave behind a financial burden on their parents or other loved ones if you happen to pass away early.
There are 2 types of Term Life Insurance:
1. One year renewable - With this option, your premium (what you pay) goes up each year based on your age and other factors.
2. Level premium - With this option, your premium stays the same throughout the entire period or term of your policy.
Permanent Life Insurance
Permanent Life insurance, unlike Term (temporary) insurance which expires, provides you coverage for the rest of your life.
Permanent insurance costs a lot more than term insurance, but it also has long-term benefits that temporary insurance does not provide. Such as options for:
▣ Building wealth
▣ Guarantee that you will be covered when you pass away, no matter how old you are
Permanent Life insurance is best if you are someone who wants to leave a substantial legacy behind for your family and loved ones. It is more conducive to things like:
▣ Gifting money to family
▣ Donating to charitable organizations
▣ Estate planning
And it of course still covers the cost of funeral and burial expenses, similar to what can be found in a term life insurance policy.
There are 2 types of permanent insurance: Whole and Universal. And each one has unique distinctions. Let’s zoom in and take a closer look.
2 types of Permanent Life Insurance:
1. Whole Life Insurance
Whole Life Insurance is the granddaddy of life insurance.
One of the best features is that it has fixed premiums. Albeit at much higher rates than term insurance, the price you pay month to month and year to year will always stay the same. Once you are locked in to a set amount, you are set for life. So it’s best to get it when you are young and healthy.
It has built-in cash value that grows equity, and can be used while you’re alive.
If you have your Whole Life policy at a mutual company, you may also qualify for dividends.
Note: These last two points require a much more detailed breakdown than the purpose of this article, however if you would like to learn more please feel free to contact us at no charge.
2. Universal Life Insurance
Universal Life Insurance is created after the model of the one year renewable term insurance, and so it has a rising cost of insurance over the duration of the policy.
However, one of the main things that sets Universal Life apart from Whole life is the ability to have flexibility on payment amounts toward your premiums month to month.
This feature could make this an appealing option for those who have irregularity in their income on a monthly basis (such as entrepreneurs or small business owners). However, keep in mind that the yearly premium will keep going up as you get older, which can turn out to be really bad news - especially if you can’t afford to pay the premiums as the prices increase.
If you can’t afford to pay the premiums because they get too expensive, your coverage goes away. And just like that, you could lose everything.
What also happens is that the cash value that is accumulated, may get absorbed into paying for the premiums as they go up.
There may also be some leeway for some insurance companies to change your contractual terms of agreements in a Universal Life insurance policy, that Whole Life insurance policies would not allow.
So in general, Universal Life is not a great deal for most people, although there may be some exceptions for people above 50 years of age. But this is something you would want to speak over with a qualified financial professional, as it can get quite detailed in the nitty gritty.
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What does this mean for me?
When we zoom back out, it’s clear that whether you go with permanent insurance or temporary term insurance, it’s likely that a more secure and affordable decision would be to go with a policy that charges fees at a fixed rate which is locked in at the beginning (Level Premium term, or Whole life), and not one that will increase over time (One Year Renewable term, or Universal Life).
There are exceptions to every rule of course. In this case, your specific circumstances based on your health, age, and lifestyle may make you a better fit for a policy that allows for flexible but increasing fees.
Regardless of the type of insurance you get, the 2 most important things are that you have:
1) a policy in place when you actually need it (i.e. the moment you die)
2) a policy that covers enough to protect your family or loved ones
Again, please make sure you speak with a financial professional to make sure you have the right support to make these important decisions.
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How much insurance do I need?
One of the questions that I get asked the most is: “How much insurance do I need?”
So I came out with an acronym to help with explaining this. That acronym is L.I.F.E. (Liabilities, Income, Final expenses, Education).
L – Liabilities ( Debts )
Some of your debts go to your family, so we want all of these paid off generally for our loved ones so we don't give them the responsibility of facing it on their own. The biggest would be mortgages and car loans. Calculate the total amount of debts you have and put this number in this category.
I – Income ( Income Replacement )
Depends on your income level and your family.
▣ For people with kids: you need to leave enough insurance to replace your income for as many years it takes for the child to become 18 years old. For example, you make 100k a year and your child is 8, you need 10 years of income, that would be 800k.
▣ For those who don’t have kids but have a spouse: It takes on average about 5-10 years for a spouse to get back on their feet after mourning the death of their life partner. A widow never complains about having more money, so we will use 10 years for this example. So if you make 100k a year, you would need 1M for income replacement.
▣ For single people who do not have kids but want them in the future: I say get the highest term you can get, usually 20/30 years and multiply your income by that amount to determine your amount. Most common is 20 years, so if you make 100k and you do not have a child, you need 2,000,000 of life insurance. This will in theory give you 2 years to maybe have a kid, and 18 years’ worth of income replaced.
▣ For those who do not want kids or spouse: you just need the Liability and Final expense acronym.
F – Final Expenses ( Burial Expenses / Money to leave behind)
It usually costs about $15,000 to bury someone through a funeral, and then if there are people you want to leave money to (Family, charity, etc) you would add this amount in this category as well.
E – Education (College Education for your kids)
However much you think college education would cost, multiplied by the number of kids you have. I always assume 100k for a child to get through college, so if you have 3 kids that's $300,000 for this category.
Once you have completed each of these 4 sections, add up the totals and this is the amount you will need coverage for in your life insurance policy!
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Life insurance is harder to get as you age
Life insurance is not something everyone is eligible for. It’s something you have to qualify in order to get. The older you get, the harder it gets to be approved, and the higher the premiums will be.
When you apply for life insurance, be prepared to provide your insurance company with:
▣ Blood/Urine test
▣ Heart rate/Blood pressure
▣ Pharmacy scan records (past prescriptions)
▣ Driver records (are you a high risk driver?)
▣ Hopital records
▣ Family history of health
Just to name a few.
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Find the right level of coverage and type of policy that best suits your needs, but do get life insurance and get it soon.
The worst thing that can come along with an untimely death, is not just the loss of life but what that life provided for others.
At S|A|G Financial Group, we are here to serve those who serve others. And the right kind of life insurance policy will be able to provide those who live their lives in service, a way to keep giving even after they are gone.
Again, please consult with a financial professional when you are considering your options. Which you can do with us for free. But whether you work with us or not, please look into insuring and protecting your loved ones, and your life.