As a rule, nobody plans on dying so why worry about life insurance? When I was a young man, I considered life insurance was akin to betting against yourself. I planned on living not dying! And live I did. It wasn’t until I was older, much older that I learned the truth about life insurance. By then it was too late to take advantage of some the best features of life insurance.
For the record, I do indeed have life insurance. In fact I have two policies, as does my wife. They are expensive but we both feel the cost is worth it as we do not want to impose a financial burden on each other or our children when we pass. Had I known then what I know now, I’d have done things quite differently.
Two Reasons People Need Life Insurance
Let’s start with one basic fact. The main reason to own life insurance is to protect your loved ones from potential financial hardship. We knew this early on as we bought life insurance for each of our children when they were young. Granted, the policies are small but the cost is a pittance. We knew that if, God forbid, anything should happen, we would not have to worry about money at a time of deep grief.
Such a day never came and those children are now grown. Still the policies remain in effect and will be passed on to them to maintain. Unless they drop the ball, they will never be without protection no matter what. It’s a good thing too as my eldest experienced health issues and is now far less insurable than as a child.
While a death benefit is the primary consideration, it is not the only one. Insurability is another important factor. Health issues, even an accident, can prevent someone from being able to obtain life insurance. For this reason, I recommend securing coverage as early as possible. Even non life-threatening chronic illnesses can be an impediment to getting good insurance. And good insurance is possibly the most important factor. What is “good insurance”?
Several things come into play but the best life basic insurance policy for those adults intent on building a solid financial future is one that builds cash value over years to where the cash value potentially exceeds the total premiums paid in. That’s right. A good life insurance policy could be considered “free money”. How does that happen?
Mutual insurance companies pay “dividends”. These dividends are considered by the IRS to be a refund of overpaid premiums and as such are not subject to income tax. When a policyholder elects to have those dividends added to the policy as “paid up additions”, they add to the cash value. In effect, this performs a lot like compound interest because next the next time around dividends are paid on the entire cash value, comprised of the total premiums paid in plus those “paid up additions”. While growth is typically slow, it all adds up so over the long haul. The cash value can actually exceed premiums paid.
The cash value in a whole life insurance policy can also be available for quick access in a financial emergency. While there are some serious and potentially dire consequences if the loan is not paid back, there are no credit checks or similar hoops to jump through to meet that emergency financial need. The only real limitation is the amount of cash value available in the policy. Just like any other loan, you will pay interest on this money.
Does That Mean There Is “Bad” Life Insurance?
The insurance industry is highly regulated. All life insurance must be approved by a state insurance board in the state where it is offered. So it could be said there is no inherently “bad” life insurance. It may be better to think in terms of appropriate and inappropriate. So when I say “good” life insurance, I’m referring to policies that are most appropriate for those who are relatively young, in decent health and have a lot of living to do. For this group, there are policies best suited to providing affordable, permanent protection while building cash value.
For those within the above parameters, there are loads of policies that are totally inappropriate. For example, an accidental death term policy would not usually build cash value and would end at some time in the future. It also would not cover someone dying of natural causes. Is this policy “bad”? Not at all but it IS inappropriate for many individuals. How many people buy such plans at an airport vending machine only to toss it in the trash after the plane safely lands?
Yeah but… I don’t need to worry about that now. I’m healthy!
This is exactly why you need to obtain life insurance right now. Those who have health issues should certainly not delay any longer! It should be obvious now, but let’s consider a couple of controllable health issues.
Suppose you smoke tobacco. If you quit today, most insurance companies will consider you a smoker until you have been off nicotine (no matter how you get it) for at least a year.
If you are overweight, losing those extra pounds will not immediately grant you a better rate. If you go on a diet today and keep those pounds off for a year, you might save a few dollars. Then again, individual insurance rates increase every year. Either way, you are putting your family’s financial stability at risk.
No one can guarantee the good health they enjoy today will continue tomorrow. Even the healthiest of us get sick or have accidents that can impact our insurability. If you are healthy, great! Take advantage of the fact that your good health will assure you of a lower rate. The healthier you are the lower your insurance cost.
Good health or not, there is yet another factor that affects everyone… age. If there is one maxim in life insurance it is this: the older you get the more life insurance will cost. None of us is getting younger. This can work for you in two ways. First, of course, is the rate itself. You will never get a lower premium based on your age than you will right now. Then there is the other shoe. The sooner you obtain a policy, the longer the cash value has to grow. How significant this factor is depends on where you are right now but why not make every dollar count?
The Cornerstone of a Good Financial Plan
When it is all said and done, your life insurance should be an important part of your financial plan. In fact it should be the cornerstone of your plan. Not only is a good policy an asset that grows steadily over time, it provides the piece of mind that comes with having a cash reserve. It also protects the family’s assets from the financial burden stemming from an unexpected death. Should that day never come, the cash value will continue to grow to possibly provide a nest egg for one’s golden years. Even if you are just beginning to build assets or you have no assets, a good life insurance policy is one of the best places to start.
So who needs life insurance? Pretty much everybody. Given the benefits, and not all of them are listed here, few have little reason not to be covered. What about you?
Learn more about protecting your and your family in my new book “Life Insurance “Dirty Little Secrets” for Consumers Revealed!”. Even if you already have life insurance, there are things you should know. For those still unprotected, this slim volume answers those questions that keep most people from securing a solid, affordable policy. You’ll learn what to look for in an insurance company and a good policy to provide financial security for you and your family. Rather than being “sold” a policy, “Life Insurance “Dirty Little Secrets” for Consumers Revealed!” empowers you to seek out and secure the coverage that best works for you.