Hey everyone, Lance Elrod with Next Step Financial Transitions. Today, I wanted to talk to you a little bit about life insurance – I know it’s something that most people don’t like to or even enjoy talking about, but let’s face it, we’re not all invincible! So, there is a need to protect; protect not only yourself but protect your family as well.
When we’re looking at life insurance, there are generally two types of insurance. There’s term insurance, which is just that – it’s insurance for a certain term. That term can be 10 years, 20 years, or 30 years, but once the term is up, that insurance is no longer in place. The second type is permanent insurance; there are lots of different types of permanent insurance, but like the name implies that is insurance that is permanently in place, as long as you’re keeping up with the premiums. Now those premiums can increase in cost over time, as you age because the likelihood that you’re going to collect on the insurance gets higher. It also starts out a little bit more expensive than the term insurance, especially if you’re getting term coverage in your younger years.
When we think about insurance, in general the most basic need for life insurance is income replacement. There are other things that you can do like estate planning, and you can also in certain cases use insurance for retirement planning, but those are not for most situations. In general, for most people we are just looking for income replacement with life insurance. So, if all we’re doing is looking for income replacement, term insurance makes perfect sense because you can control how long you want that insurance to last. Generally, once you hit retirement, the need to replace income is no longer there because now you’re retired and there’s no income to replace! So now we know how long we need the insurance for.
When it comes to how much, we are talking about income replacement, so income is a factor. But you can also look at things like liabilities. Do you want to be able to pay off your mortgage for your surviving spouse? Take care of all the credit card debt? Any car notes? Anything like that, you add to the income replacement. What about educational expenses? How close are your kids to college and do you want to provide for college for them if you’re passing? If so, you add that on top as well. That can help you determine ‘how much’ insurance you need, to go along with how long you need that insurance in place. There are extra things you can do like laddering the term insurance, but we’ll get into that another day.
So, when we’re looking at just insurance in its purest form (as income replacement) time and how much really help determine what you need. If you need help figuring out which product is best for you, how long, or how much insurance you need, you all can always reach out to us here at Next Step. We will walk you through that whole process; help you figure out what insurance is right for your situation, how much insurance is right for you, and answer any questions that you have along the way. You can always reach out to us, and we’d love to walk you through that process and be of any assistance. Y’all have a good one!