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As we finish up on the Major Components of a Healthy Financial Plan we are going to discuss the different kinds of insurance. There are many different insurance products on the market right now but we are going to focus specifically on five, starting with Life Insurance. The purpose of life insurance is to replace income lost in the event of death. Generally it comes in two different kinds: Term and Permanent.
Term insurance is life insurance that is over a specific period of time; usually in 5 year increments whereas permanent insurance is coverage for your whole life as long as you pay the premiums. Permanent insurance has many different names including whole life, variable life, and universal life. We recommend to our clients to get level term life insurance where your premium is the same throughout the term. This is because term is a better overall product then permanent life insurance mostly because it is significantly cheaper. By investing the difference in price yourself, instead of using permanent’s investment vehicle; you will come out ahead in the long run.
When looking for level term life insurance, we recommend that you get about 8 to 10 times your income. If invested properly, this should reproduce the yearly income your family would lose if you die. Generally we also recommend 20-25 year term on the insurance. Yes, after the term is up your premiums would skyrocket, but if you followed the major components of a healthy financial plan, had no debt and invested wisely you would have accumulated significant wealth so you would probably not have the need for life insurance anymore.
With all this being said does everybody need life insurance? Well not exactly. As mentioned before, if you have significant wealth then you are basically self-insured and you can go without it. Also if you are single and have no dependents then there is not a big need for life insurance, except maybe a small policy to cover your burial expenses. However, if you are young and planning to get married someday, buying term might be wise now as the rates are extremely low for young, healthy people.
Hopefully, if you have a family and have no life insurance, after reading this article you now realize you have a need for life insurance. We would be more than glad to sit down with you in person and discuss life insurance and other components of a healthy financial plan. If you are interested please contact us today.