For more than a decade, the insurance industry has designated September as Life Insurance Awareness Month. Many may wonder why they block off a whole month to focus on one particular type of insurance. After all, there are no months dedicated to auto insurance, homeowner insurance, or health insurance, so why life insurance? The primary reasons are the common misconceptions the public has about this product, and the fact that many who really need this protection often choose to go without it.
Life Happens conducted a study on life insurance trends that found that 40% of Americans have no life insurance coverage at all. The reason most often cited is that it is too expensive. However, when asked how much they think life insurance costs, 80% of those surveyed overestimate the rates. So why do so many people think life insurance costs more than it actually does? The answer is that rates have fallen more rapidly over the past couple decades than most realize.
Insurance companies price their products based on risk as determined by their actuaries. For example, in many areas of the country, homeowner insurance premiums have risen because of an increase in major storms that inflict widespread damage, thus costing insurers millions to pay out claims. The opposite has occurred in the area of life insurance.
With life insurance (particularly term life insurance), the numbers are pretty straightforward. The only way for an insurance company to pay out a claim on a term policy is if the policyholder dies. Since scientists have cracked the genetic code and opened the door to previously unimagined medical breakthroughs, people are being effectively treated for health conditions that were once thought incurable. This has naturally led to people living longer, thus putting downward pressure on the cost of term life insurance.
Is Life Insurance a Good Investment?
You may look at the dropping life insurance rates and say, “that’s great, but do I really need it?” There is an ongoing debate about the need for whole (permanent) life insurance. This product costs more than term, but it is more than just life insurance; it is also a financial asset that accumulates cash value over time. Term, on the other hand, does one thing; pay out a designated death benefit should the insured pass away during the term of the policy.
While financial experts have varying opinions on whole life insurance, the reality is that it’s a better product overall, but one should not sacrifice insurance if they cannot afford a whole life policy.
Dave Ramsey on the other hand, recommends term life insurance and mostly due to cost. It’s unfortunate that he does not see the value of whole life insurance as he is quite influential in the personal finance community. Ramsey does recommend that you have 8 to 10 times your annual income in a term policy. He reasons that with this level of coverage, if you pass on, your family would be able to invest the death benefit for (hopefully) a 10% return, allowing them to replace most (if not all) of your income. That’s certainly reasonable, but wouldn’t you rather benefit from your life insurance policy while you are still alive? That’s one aspect where whole life is a better investment.
Whether you want to go all the way up to 10 times your income is up to you, but most recommend at least having enough life insurance to pay off all your debts and replace your income until your youngest child turns 18 years old. So how much does it cost to carry this level of insurance? Probably a lot less than you think. Here is one example: a healthy 40 year old male can purchase a 20 year level term policy with a death benefit of $500,000 for roughly $30 to $40 per month, or $1 to $1.25 per day.
Where Can I Find the Best Life Insurance?
There are numerous websites out there where you can enter your information and have it sent over to a few local insurance agents who will call you back with a quote. Another approach is to speak directly with an independent insurance broker who can shop for rates among several of the top insurers in your state. Working with an independent agent, you can have an expert do the shopping for you and find you the best life insurance policy to fit your needs and budget. If you need a recommendation for an insurance expert in your area, contact the team at Fiscally Sound and they can help you. If you are in Maryland, DC, or Virginia, I’d love to help you.
About The Author
Todd Balderson has been protecting families and businesses through insurance coverage since 1996. He is the founder of Balderson Insurance Agency and serves clients in Maryland, DC, and Virginia. Todd is known for reminding people about how “insurance is more crucial to building your wealth than investments because without insurance, it’s easy to lose your assets.” Learn more about Todd and the insurance protection he offers at http://www.BaldersonInsurance.com