Life insurance should really take center stage when it comes to financial planning. Yes, we need cash flow planning, a will, and an emergency fund. These are all important pieces of the financial puzzle. But life insurance does something that no other planning tool or investment vehicle does – it buys us time. It puts a protective ceiling under our dreams and bridge the gap from where we are in our financial journey to where we desire to be in the future.
The sole purpose of life insurance is to create CASH…nothing more…nothing else. No one dies at the right time. The proceeds of life insurance will keep the roof over the heads of our loved one and ensure that they maintain their standard of living. But more importantly, it prevents the dreams, hopes and aspiration that we have for our family from dying with us.
I believe that once we understand this fundamental truth, we can dispel this apparent inertia that we all experience when it comes to getting life insurance.
Here are the three things you need to know about life insurance.
1) It is not an investment – Life insurance does not offer you a return on your money. The stock market does. There are some insurance products, whole life and universal life insurance, that will return excess premiums with interest to a cash value. But pure life insurance creates money where none existed before.
2) It is not complicated – There are basically two types of insurance in the market. Term insurance and whole life insurance. If you have a young family, high debt load and a tight budget. Term insurance answers all things. It will give you a large death benefit coverage and low monthly premium. It has different term period such as 10, 20 or even 30 years and the premium will increase at the end of each term.
If on the other hand, you need insurance for burial expenses and estate preservation then whole life insurance is what you need. It will cost more but it gives you level premium throughout the lifetime of the policy.
At different stages of our financial journey we will most likely need a combination of both types of insurance – or even a universal life insurance which is really a marriage between both term and whole life insurance.
3) We all need life insurance at some point in our life cycle – if you are starting out in life, it ensures that you will have coverage even if you later become uninsurable.
If you have a young family and a high debt load – it will pay the mortgage, clear the debt and allow your children to get a post-secondary education.
If you are retired and have accumulated your wealth – it secures your estate and allows it to be transferred to the next generation in the most tax efficient manner.
I hope life insurance will earn the respect it rightfully deserves as we work to create our personal financial roadmap.
What are your thoughts on life insurance?