So, you are walking down the road, minding your own business, when out of nowhere a velociraptor enters your line of sight. Now, this seems quite unusual to you. Why on earth would a raptor be in these parts. Course it is night, and the walk that you thought would be relaxing suddenly turns into a chaotic nightmare. your skin begins to crawl when the raptor crane's it's neck in your direction. It's teeth, large and razor sharp, drip saliva in anticipation of its next meal, you.
Now, generally, your first thought would be to run. But, for some reason, running doesn't seem like the best plan. It's weird because, you just watched Jurassic Park the other day, but never thought that you would be living it. You can't quite remember whether they said that raptors sensed motion, or was that T-Rex. "Oh darn, I knew should have stayed awake during that informational section!", you think to yourself. Either way, running is not the right idea. You are a gonner and you know it.
Your life then passes before you very own eyes with a flash. All of the moments you had with your children, all the time you spent just sitting with your wife chatting about your future. But now, your future is over. It will never come to pass. Quickly, you begin to process your successes and failures. One by one you count them and finally you realize something traumatic. You have failed in one sense that you will never be forgiven for. Something so huge, but so small, you wonder how you could have neglected it. You never purchased life insurance.
Now, don't get me wrong, you will probably never run into a Velociraptor in your life time. But other incidents will indeed happen. I do not wish to discuss all the possible methods of our dear friend Death, but I do wish to discuss the prevention steps that we can take. Death is a depressing subject, which I will treat very lightly. I like to add a little zing to a dull and daunt principal. Please forgive me if you are offended in anyway.
Death comes at anytime or place. No one knows exactly when it is going to happen. For this reason, we must be prepared before hand. Preparation is a means by which we as individuals with anticipated risk, may avoid the destructive causes of a future event. This can be anything from emergency funds, food storage or our topic today, life insurance.
A life insurance policy is bought from a financial adviser, or insurance agent, and protects against the consequences of death. These consequences come in many styles. They can be any of the following.
- Loss of income
- Medical Expenses
- Debt
- Funeral Costs
- Business
There are many types of life insurance, but mainly the most used and purchased are term and whole life. A term life insurance policy has a set limit of coverage. For example, a 20 year term life insurance policy will grant you, the purchaser, a determined amount of life insurance upon your death. Meanwhile, you pay a small fee each month to hold the policy current.
If you happen to run into T-Rex during those 20 years, you will receive that determined amount. When I say determined amount, I mean an amount you decide is feasible for your means. This can be $100,000, $400,000, $15,000. or even millions. There are many amounts that you can choose, but I will leave them at these simple at these numbers.
On the other hand, if you do not die during those 20 years, heaven forbid, your policy will end and you will either have to renew at a new rate, or drop it all together. The amount lost is minor, but the amount that could have been gained both in dollars and the security of knowing your loved ones are taken care of is tremendous.
The other common type is Whole Life. Whole life holds true to term in certain aspects. The unique part of this type is its investment characteristics. A person may purchase this policy, making equal payments throughout their whole life. Meanwhile, a part of their payment will go to cover actual insurance costs, and another will be placed in a savings account where it will accumulate more wealth. During this time, if a person happens to kick the can, a determined amount will be awarded to the beneficiary or generally family member. Along with this, an individual may be allowed to borrow against or withdraw part of those funds. If you do not die, then at the end you will be able to withdraw the amount in the account.
These are the two most common types that I will discuss. There are drawbacks and benefits to both of them. The drawback for term is that it will eventually end, and premiums paid into it will be lost by the payer. On the other hand, term is quite in expensive and allows an individual the right to invest more of their income into sound investments, thereby increasing their wealth. The drawbacks of whole life include how expensive it is, and softly put, the amount of profit that a company makes off of your money. Of course, the benefits are the return on some of the money invested in the account, and a longer term of coverage.
I do not wish to discuss the pros and cons to either, because I have a very biased opinion. I leave this up to you guys to decide. I am but the means of knowledge.
Determining the amount of life insurance to buy is done by determining the life style by which you or your spouse wish to live. A general rule, is to have the ability to pay off the home, and other debts, leaving them debt free, along with the ability to pay off medical costs and funeral costs.
Another factor to remember when purchasing insurance, is who it is for. For example, my wife is a stay at home mom. If she were to pass away my life would be hard. But income-wise I would be no worse off. For her, I would factor in my debts and future costs of her funeral. $50,000 would be enough to cover that for her. If I were to pass away, she would be without income. Therefore, my policy might be a lot higher than hers. You get the picture. Along the way, your life will change. Make sure that when these changes occur, you meet with your adviser to adjust the amount that you have. Purchases such as homes or income rises or drops are such factors to keep in mind. I do not mean 50 cent raises, but major increases in salary or even major drops in income from taking that dream job you wish to have! Keep these in mind!
I have gone over only a small percentage of the big picture, but I believe that this will suffice a lot of the common public. If you have any further questions, please send me either an email or comment, and I will get right back to you.
If you take anything away from this, I hope it is that life insurance is important, and that dinosaurs don't really exist!
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