A Guide To Life Insurance
The origins of the concept of life insurance, as we know it, can be traced to ancient Rome. Caius Marius, a Roman military leader, creates a burial club among his troops in approximately 100 B.C, so that in the event of an unexpected death of a club member, other members will pay for the funeral expenses (Romans believed anyone who was improperly buried would become an unhappy ghost!)
And while we have come a long way since the days of ancient Rome, some things remain the same. And one of them is a basic need for Life Insurance.
In most cases, Insurance covers you for something that might – or might not – happen. With life insurance, your insuring against something that is certain to happen. I can assure you this: If you don’t go before age 65, you will definitely go after age 65! Here is an orderly way to approach the topic:
1) Assess your need: Life insurance was designed to fill a need. Simply consider your financial situation and the standard of living you want to maintain for your dependents if you are not around. Then make sure you have enough insurance that – at a reasonable rate of return – would generate enough lifetime income (inflation adjusted) to continue that standard.
2) Choose the type of policy:
- Term Life: Provides only a death benefit without “cash value” and is available for set periods of 10, 15, 20, 30 years. Term life offers you the least expensive cost per $100o of coverage purchased.
- Whole life: Offers permanent protection with a cash value account that grows over time. This insurance provides a level premium throughout your entire life. However, initially it costs about 10x term life for this benefit.
- Universal life (UL): This type of plan offers greater flexibility than either whole life or term. After your initial payment, you can reduce or increase both the amount you are funding and the benefit amount. It does have a “cash value” but it is typically less than whole life. Some UL’s can be structured like term; configured at the time of purchase to provide a level death benefit and level premiums that are contractually guaranteed. The reasonable cost and flexibility has made UL my personal favorite in most cases these days.
3) Review and revise: Your situation and needs will obviously change over time, hence this is not a static process. Sit down with your advisors every 3-5 years to consider whether adjustments to your Life Insurance plan are necessary based on your current situation.
Please understand: Researching and purchasing Life Insurance is no fun! The application process is paper intensive, can take 30-60 days or more (I’ve seen it take a year!). Physical exams are typically required and expect probing regarding; your foreign travel, health history, lifestyle, finances and family.
The whole process can feel both inconvenient and intrusive…
But ignore it at your own peril.