Friday, June 7, 2013

Why You Need Life Insurance

What Is Life Insurance?

Ever have people try to sell you life insurance and you get all offended and feel like they are being pushy? Well, to some degree having life insurance makes sense but the problem is people assume they will do fine as it is and what they have is sufficient enough. What most peoeple don't understand about life insurance is its usefulness and why they need it. There are
over 60 million families that don't have life insurance and those that do have coverage, should be higher than what they currently have.

There are people that feel having life insurance will only make their family rich when they die hence making them a target. If 100k is going to make you rich than many would be pretty wealthy in the US but that isn't the case. 100k in insurance is low as an income to help your family when you are gone is barely going to cover them for more than a year if you have kids and all.

The reason for life insurance is to protect your income income just in case something happens. For example if you have coverage for 250k and something happens to you or whoever the coverage is on, the 250k is to cover the income that was loss due to a death of the person who brings in an income. This is not to make someone wealthy but to keep them afloat as they recover from the loss. So, life insurance isn't something that is suppose to make you or your family wealthy if something happens to you. Life insurance is suppose to be temporary so there is some time to recover.

Type Of Life Insurance

There are many types of life insurance, the most popular type is life insurance are those with a cash value. What is a cash value? Insurance with cash value is suppose to have a savings vehicle attach to the policy, but there is more to it than just a savings/insurance. Most cash value insurance will eventually diminish and in the end the policy might even lapse, depending on what the agent tells you. Some agents tell the client that you just pay for a certain amount of time and it will be done, but it isn't becuase the payments are taken from your so-called savings till it runs dry. You are usually told that the savings is for your child's college education, but when you touch that money you are charge with an interest, and they consider it as borrowing your own money. Why would you need to "borrow" your own money if that is suppose to be your savings?
Cash value insurance is big on commisions, so insurance companies focus on that rather than the types that can help, but because commision is too low most don't even bother. You will run across people telling you cash value is better and its either they themselves is an agent or they do not grasp the idea that insurance should be temporary so their clients can save and invest in hopes to be self insured. The cash value policy was created to be attractive to those that don't understand how it truely works and will seem like a very nice product. When something happens, the beneficiary will recieve the face amount, which is the amount insured for, but the cash value will go to the insurance company. Most people do not know this, but that is what insurance with a cash value vehicle is. The biggest problem is when people are sold life insurance they are told that there is a savings attach to help save money and most clients think that this will help make them wealthy later on. Cash value, regardless if its tax sheltered or not has no real advantage in doing what insurance is suppose to do.
Term life, which is temporary life insurance meaning if you buy a 30 year term life insurance policy, you will be covered for 30 years with the same monthly payment. Term life is what most would consider as maximum coverage. For what you would pay in whole life or cash value insurance you can purchase term life for 3 or 4 times the coverage.

Think of this, if you have kids at age 4 and 5, a 30 year term life will cover your family for 30 years and at that point your kids will be 34 and 35. At that point they will be taking care of themselves and coverage will not be needed. The premium difference between the cash value insurance and term life insurance can be used towards retirement which should be your investment.

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