Monday Morning Money Moment: July 17, 2017
Understanding Life Insurance
Welcome to another week here at Budget Boss with our “Monday Morning Money Moment.” This post opens up Life Insurance week and before you skip a week hear me out. This week I will be going over why Life Insurance is for everyone, why it is essential to any financial plan, the different types of life insurance and what not having it could mean to you. I firmly believe that everyone should have Life insurance and I base much of my practice on it. Most of my posts are about money and budgeting and there is a reason for that. Freeing up your money is what allows you to take the steps to ensure you have all your bases covered. The most important, most selfless and often the easiest and cheapest step is securing life insurance. Many people think that life insurance is expensive and difficult to obtain, which couldn’t be further from the truth. You can buy the Cadillac versions with all the bells and whistles or go for the Fiat versions that are simple and cheap. Life Insurance is a very dynamic product that can perform a multitude of tasks including protection and investment growth. In this post, I am going to go over the types of life insurance and who might benefit from these policies.
1) Term Life Insurance
Right here is your basic type of insurance. Term Life Insurance will cover you for a specific amount and a specific amount of time. The premium is constant throughout the term. Terms can range but the price of the premium is what dictates the term. Once the term is over you can renew most coverage but then the price would go up because you are now older. Term Life Insurance can be as cheap or as expensive as you want, depending on your health and coverage needs. Term Life can also be converted into Permanent Life Insurance of which I will discuss next.
Who should get Term Life insurance?
Think of term life insurance as “temporary life insurance” in so much as it covers a temporary need. The greatest temporary need for most people is debts like a mortgage, loans and business needs. Term can also be used as a temporary income replacement for families to cover the loss of one parent and get the children to the age of majority. Most terms last from the 5-20 year range and it is often the cheapest form of insurance.
Best for: Families, Business Owners, Young People, Cash Strapped People, those with Debts
2) Permanent Life Insurance
Just like the name says, Permanent Life Insurance lasts forever, well until you die anyway. The insurance company guarantees payment of the death benefit as long as you pay the premium. Permanent Life Insurance has an investment component that creates interest over time. This interest allows the death benefit to grow over time. Think of it as 2 buckets, one with the death benefit and one with the investment. The death benefit bucket is full from day one, but the investment bucket starts empty. As you pay your premium the investment buckets grows till it eventually surpasses the death benefit amount. Because the death benefit is guaranteed to be paid out and the investment component; Permanent Insurance is generally more expensive than Term Life.
Who should get Permanent Insurance?
In my humble opinion, everyone should get permanent life insurance. The reason is simple: It covers final expenses and does not leave a burden on your loved ones. It also allows you to pass on cherished family legacies such as a cottage, farm or home and avoid costly estate taxes. Yes, the government still comes after you when you die. It also helps with proper business succession planning. Anyone with a “permanent need,” should get this type of insurance. That is essentially everyone so the amount of coverage then becomes the debate.
Best for: Single Individuals, the Elderly, Business Owners, those wishing to leave a legacy, or families
The reason I think buying life insurance is so important is that it is literally the most selfless thing you can do. You accept the reality that you will die one day and then make sure that when you do those you love aren’t negatively impacted financially. At a time when banks, funeral homes, the government, and long lost relatives are coming with their hands out; your life insurance company is coming with a cheque. I have recently secured my own coverage and it is a permanent policy that will grow over time. I have no wife or kids but I did not wish for my parents to have to bear the burden of my death financially. Being 33 years old I wish I had obtained this policy when I was younger for several reasons of which I will go over tomorrow. Taking the steps to make sure you leave a legacy of good memories and not debts and expenses is essential to any financial plan.
Thanks for reading my post today and tune in tomorrow for the “Tuesday Tip of the Week,” where I will go over why you should get Life Insurance when you are younger. Have a great day friends!
“If a child, a spouse, a life partner, or a parent depends on you and your income, you need life insurance.” – Suze Orman
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Joseph James Francis is a Financial Advisor. You can find him on various social media platforms and at www.budgetboss.ca.