Thanks for continuing on the path with me toward financial freedom. We have two more days left in the week, and that means two more topics to hit on that you must take care of before you begin relentlessly crushing your debt.
So, usually, this next topic either makes people…
Or they just don’t want to hear about it…
However, it’s something that, if you have a home, kids, or a spouse, that you flat out need, no matter what kind of financial shape you’re in. What is it? Life Insurance. I know, I know. Pretty boring, and thinking about your own mortality isn’t exactly fun. It’s like you’re inviting the grim reaper to your doorstep, right? Wrong.
The truth of the matter is this: NONE OF US IS GETTING OUT OF HERE ALIVE! We’ve all got to meet our maker at some point. The only question is: When? What if it’s early? What if it’s while you still have a level of debt that would force your family to move from their home, or to sell things to get by (Cars, valuables, etc…), or to forego saving for college or paying for your kids’ weddings down the road? In my eyes, the only real decision you’ve got, is whether or not you’re going to leave your family with a legacy that will help them accomplish all of the goals that you’ve set together.
What Kind of Life Insurance Is Best?
As an advisor, in most situations, it’s pretty cut and dry for me. If it’s a young person who checks any of the boxes I talked about above (Has a home, kids, or is married), I recommend Term Life insurance. Simply put, it’s the least complicated, and least expensive way to insure yourself and your family against a premature death. In fact, comparable Permanent policies can be as high as 10 times more expensive than their Term counterparts. That’s a HUGE difference. I’m also a proponent of the KISS (Keep It Simple, Stupid) method, and Term insurance definitely checks that box as well.
So how affordable is Term Life? Well, when my wife and I were 29 and 32, we both took out policies for $500,000 each. How much does it cost in total? $44 per month. That’s it!
Mind-blowing, eh? Granted, we’re both very healthy, so individual prices vary, but generally young people are in reasonably good health, so getting rates like that is very do-able.
If it’s an older person (Age 50+) with limited retirement savings, a permanent life insurance policy (Universal Life, or Whole Life) may be more appropriate. Obviously, there is no “One Size Fits All” policy, and individual circumstances vary, but following these basic parameters has served me well inside my practice. If you want to dig into some real differences, I’d encourage you to read these articles by Forbes and Nerd Wallet.
How Much Insurance Do I Need?
Everyone’s opinion on this is different, but the most widely shared conclusion is that you should carry 10 to 12 times your income in Term insurance. What does that mean? If you make $50,000 per year, like both my wife and I did at the time we took our policies out, you should carry $500,000 in insurance. That’s what I did for my family, and it’s what I recommend for most of my clients.
Why That Much?
As I discussed above, the goal of the policy should be to replace the income that your family lost as the result of your death and subsequent lack of income that you would have generated for the rest of your working life. You want to make sure that your loved ones are taken care of if you’re not around. That’s what grownups do. Because, honestly, who wants to leave their family with no legacy, and a ton of debt, and maybe not even enough money to put you in the ground.
One Final Note
Speaking of putting you in the ground, have you ever seen a post on Facebook or Twitter that has a link to a GoFundMe account because someone passed away, and their family doesn’t have money to take care of things now? Do you know why they had to set that up? Because no life insurance was in place.
Don’t be that guy! If you need it, get some life insurance today!
Join me tomorrow to find out the last thing that you need to do before you start getting that debt monkey off of your back.!
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