Finance Friday- Life Insurance

??Finance Friday??

'Twas a few weeks before Christmas all through the land, I was reading a Facebook message with a phone in my hand...

It was a friend of a friend.?

She had heard I worked for T-Mobile and was wanting some help possibly saving money on her phone bill. She began to share her story…

She and her husband were in their early to mid-fifties. Two girls in high school. She hadn’t worked since the girls were born. He was healthy. But out of nowhere he suffered a massive heart attack and left her with the life they had built…

• Mortgage?
• Braces?
• Bills/Debts
• No job for her to produce income?
• Not much retirement savings

And the part that made it even worse…no life insurance.?

My heart broke. It still breaks today as I think about it. I communicated with her a few times since we helped her out (yes, we did reduce her bill by $165 and the girls were able get new phones for Christmas and kept Netflix because of T-Mobile’s great offer at the time.)? That was the good news.?

No life insurance meant she couldn’t grieve the way she probably needed to. She had to organize everything and start to plan how she was going to create an income quickly.?

This is why life insurance is part of a good personal financial plan. It takes someone who is going through one of the worst events in their life and allows them space to grieve, space to wait until they begin to come out of the fog and think clearly and rationally, and space to plan the next steps without having to go further into debt and add more stress onto an already horrible situation.?

It is one of the most loving things that you can do for your family or those around you that depend on your income to survive.?

If you have anyone, anyone…kids, spouse, parents, anyone…who depends on your income to live, you need life insurance.?

Is it fun to think about? Heck no!?

Is it time consuming to set up and establish? Yes.?

But is it worth it? 100%?

Because…we don’t know when we might need it.?

Many financial advisors advise you to get 10-12 times your annual income in life insurance. Why??

Well, like we talked about a few weeks ago in my compounding interest post and my post last week around index funds, you should expect between 8-12% in returns if that money is invested into an index fund for your family or dependents to live on in your absence.?

Think about it…

What if you were to pass away suddenly and your spouse and kids were able to:

• Pay for your funeral expenses without incurring debt.?
• Pay off your debts (no more monthly payments).
• Possibly pay off your mortgage.?
• Have income similar to what you were bringing in to live on and be able to grieve and breathe without the stress and worry of having to find a job and income to pay for everything.?

Game changer.?

What a loving gift for those left behind.?

[Disclaimer: I don’t sell life insurance. So, it doesn’t make me any money. You can get life insurance from many different places.?My goal is to encourage you to get it.?Make it part of your financial plan.?Your legacy.]

One thing that is important to know and consider…

Many people have life insurance through their company benefits.?

This is great.

However, please, please please, make sure you have enough life insurance outside of your company’s policy to cover the 10-12x’s your income.? Why?

Because if you ever leave your company, many times the life insurance isn’t able to transfer with you.? And you might be able to get a lot better deal from another company who sells life insurance.??

Also, think about if you had life insurance with your company, but while you were there at that company, you had something happen, a diagnosis or condition pop up, and that made you uninsurable in the future.? It would be a shame if you were not able to get life insurance if you ever left that company.??

Also, your company’s policy is usually a lot less than the 10-12x’s your income.? In my experience it is usually less than 5x.??

So, consider getting your own policy outside of your company’s benefits.??

Also, get it through someone you trust! Make sure you understand the difference between whole life and term insurance.??

The cost.

What the policy pays.

• Example: Whole Life- you pay into it, but your beneficiaries only get the amount on the policy, for example a $500k policy pays out only $500k.? The money you “invested” in the whole life policy as an “investment” is kept by the life insurance company.? Your beneficiaries do not get that “investment” returned to them.? On the flip side, with term life insurance, it is a lot cheaper and allows you to invest the difference yourself into an investment of your choosing.? When you die, you would get the face value of the policy, say $500k, and all the money you invested from the difference in whole life vs term, your beneficiaries get that too!)?

[See the below graphics that show you this in a visual form (two different scenarios)]

In the above example, if you were to invest the difference, $8,600-$550 = $8,050 for 25 years, you would have almost $1,000,000 (at 10% return). If at any time during that 25-years you were to pass away, both policies would pay out $1,000,000 in insurance to your beneficiaries, so they are the same in that regard. However, the whole life policy stops there. Your family would not receive any money that was made from the additional annual premiums you paid into it for the "cash value". In the term example, they would get paid out the policy value if you were to pass away, AND, they would get to inherit the investment you had outside the policy.

So, get educated.? Don’t rush into it, but understand exactly what you are buying into.? However, don’t wait too long to educate yourself!? It is too important.??

We aren’t promised tomorrow.? Make sure your loved ones are taken care of!??

Hope this helps!?