Insurance such as term life insurance should be considered a must in your financial portfolio. Term Life insurance benefits include a higher face value death benefit at a lower cost than other traditional insurance vehicles. A term policy can be effectively used to cover and secure a home mortgage loan through a decreasing term policy. As the debt reduces, so does the payout and cost of the coverage. Term life insurance also is usually offered through an employer-employee relationship to extend coverage while an employee of any company. The uses of term life insurance are very diverse to cover numerous scenarios. They are extremely beneficial because of their lower costs.
Whole life insurance and its counterparts (universal life, single premium whole life, etc.) do have their benefits. A whole life insurance policy will gain in cash value, and face amount over the length of its coverage. It provides policy loans against the cash value of the policy. Survivor benefits are tax-exempt. A small Whole life insurance policy at an early age “ensures your Insurability”, meaning that you will always be covered as long as you pay the premiums. These benefits are significant but come with a lofty price. It is advisable to own a smaller whole-life policy to take advantage of the above positives. However, utilize a term life insurance policy for large death benefit amounts at a lower cost.
Let’s look at some scenarios. Take Joe for instance. Joe got married at age 25, has a good job, and is thinking about starting a family. Joe makes a modest $35,000 a year with a solid company. As Joe plans for his future at age 25, it is smart to invest in his first life insurance policy. He should “insure his insurability” by taking out a modest $10,000- $25,0000 and using a variation of one of the many types of whole-life policies. By starting his first insurance with a small whole life policy he can never lose that coverage as long as premiums are paid or accumulated or existing cash value can cover premium payments.
After Joe secures the whole life policy, he should attempt to purchase a term life policy for an amount equal to 10 years of accumulated replacement salary. In Joe’s case of currently earning $35,000 a year, he should purchase a term life insurance policy with a face value of 350,000. He should check with his employer for group-term life insurance at a low cost. The premium payments can be taken directly out of Joe’s check and be confident that his new family will be covered in the event of his untimely death.
They qualified for their mortgage and have moved into their dream home. Joe being a responsible financial individual and wishing to provide for his family sought out a decreasing term insurance policy to cover the mortgage payment on his new home. The decreasing term insurance policy is set up so that the face amount or payout amount lowers as the mortgage loan amount lowers. In case of an untimely death, Joe’s house mortgage loan would be paid in full and Joe’s family wouldn’t have to worry about monthly mortgage payments.
On Joe’s 30th birthday, his wife announced she was going to have a baby. Joe’s financial picture has improved over the past five years and now earns $50, 000. Keeping with the 10-year replacement income strategy, Joe should increase his term life insurance coverage to a $500,000 face value death benefit payout. As Joe and his family continue their lives together, the responsible and financially sound Joe increases his term life insurance coverage to coincide with his rising income. smart fiscal policy of using term life insurance rather than whole life insurance has allowed him to purchase greater coverage at a lesser expense. The amount of savings in Joe’s budget from purchasing term life insurance as part of his financial plan has allowed Joe to also invest in an IRA and other investments for his retirement.
has used smart financial decision-making to cover his family in the event of his untimely death. In Joe’s case, his house would be paid off, due to his decreasing term life insurance policy. Joe’s family would receive a death benefit greater than 10 years of his combined future salary through the use of his term life insurance policies.
