Is Life Insurance Something I Ought To Consider?
A recent tragedy in Israel on the Lag B’Omer holiday, in which 45 men and boys were killed, has left us with a broken heart for all the families affected. Over 750 people, spouses, parents, siblings and children of those taken are now sitting shiva, the 7 day Jewish mourning period. There are two sets of parents that lost more than one son, there are young mothers who have lost their husbands, there are mothers of many children who have lost their husband, and children who have lost fathers. Each and every story is painful and because we, the Jewish people, are one nation with one heart, we all feel the pain.
Of course organizations and individuals and even El Al airlines have stepped up to help the families who need help financially and otherwise, and Jewish communities always rally around those in need to do what they can. But there is always a limit to the help one can get from the outside, and with that in mind, many families with children may want to consider life insurance in order to feel that they’ve done their best to protect their family under every circumstance. Of course, that policy will never need to be cashed in hopefully, except at the end of a long fruitful life, but having life insurance does give parents and spouses a sense of security.
Interestingly, In Israel anyone with a mortgage is required to have life insurance that would cover the mortgage in the case of a death, so many people are covered in this aspect, and would be relieved of having to pay the mortgage on their property if say, one of the spouses looses their life. I don’t know if this exists in other countries, but it certainly has been a huge relief for many families. In many cases that policy is all that the family can afford, and if not for the law, they would not have taken out the policy to begin with.
Lets learn a little bit about the different kinds of life insurance policies available in the United States in order to really examine whether this is something worth considering. If you live outside the United States most of the information still applies, one just needs to be aware of laws regarding life insurance in their location.
The first thing to know is that life insurance policies are divided into two main categories: Term and Permanent.
Term Life Insurance
A Term life insurance (TLI) policy is in effect for a set length of time, usually 5, 10, 20, or 30 years. The policy will pay you the amount of money stated in the policy if you pass away during the pre-determined period. Typically, people have the highest need for life insurance during the first 20 years of their children’s lives. After that, their children will hopefully be self-sufficient, and as a result, 20 years is one of the most popular term lengths available. Term life insurance quotes are not difficult to determine and you can easily get a ballpark idea of the cost by doing life insurance research online.
Experts generally recommend a policy that will pay out at least 5x your annual salary. So of course, the greater your salary, the greater the premium, just as premiums for older versus younger are more costly, as for smokers versus non-smokers. ( A very good reason to quit or not begin in the first place!) The best way to take the mystery out of the life insurance question is to start by getting a term life insurance quote, then you can realistically plan accordingly.
Permanent Life Insurance
Permanent life insurance policies provide a cash payout on death just like term insurance, and as the name suggests, a permanent life insurance policy has a term that is your lifespan. Permanent insurance policies also build cash reserves by taking some of the premium you pay into the policy, investing it, and returning the interest, returns, dividends, or a combination to you. The cash reserves can usually be borrowed against after a certain amount of time.
Whole Life Insurance
The most common type of permanent life insurance is called whole life insurance (WLI), A Whole life insurance plan provides a permanent, “guaranteed” death benefit and builds cash reserves as you pay into the policy. Premiums are fixed by the insurance company, and can be quite high.
Many choose whole life insurance as they want to leave behind an inheritance or money for their beneficiary or beneficiaries. With term life insurance, the death benefit is only paid if the death occurred during a certain time frame. With whole life insurance, it doesn’t matter when the death occurs, and hopefully it is after a long wonderful life!
Another reason one might choose whole life insurance is to provide money for your survivors to pay estate taxes. Whole life insurance could potentially help avoid forcing your heirs to sell off parts of the estate, like heirlooms or real estate, in order to cover the estate tax bill. Anyone who is fortunate enough to be considering a whole life policy for this reason should consult a tax professional before making any decisions.
Whole life insurance also make sense if you have lifelong dependents, like a child with special needs, as you could fund a special needs trust through a life insurance payout. There are many different insurance options that can be catered to your family’s needs, so do keep that in mind.
Term vs. Whole Life Insurance: Which One To Choose?
While both forms of insurance share the primary purpose of providing a death benefit, they’re very different policies. One or the other will be the suitable choice for people and families depending on their financial situation and goals, and one should do their homework when it comes to choosing a policy.
Even so, choosing is not simple. As explained in The New York Times, the simplest solution for most people is term life insurance. More complex policies with large and sometimes hidden fees might be the one the sales agent wants you to buy, but do be careful!
What About Accidental Death Insurance?
Accidental death insurance is exactly what it sounds like. Examples of what is covered include: death from unexpected events like car, bike, and commercial air crashes, fire, and murder.
Accidental death insurance doesn’t cover things like: death from illnesses, suicide, death while participating in a riot, or committing a crime. Since these exclusions vary by state, be sure to do your homework before buying a policy of this kind.
In conclusion, when comparing different policies, consider the financial needs of your family and which policies have the right features that can help meet those needs.
I hope this short introduction to life insurance has been helpful, may we only experience good health and long happy lives!
