Life Insurance- Do You Have the Whole Picture?
As we become adults we take on the expected responsibilities like getting a job, paying our bills, and providing for ourselves. Many people go on to start families and provide for them. But what if that provider died? This has been a concern since the beginning of time.
Life insurance has been around for a long time, longer than some people realize. Dating back to ancient Rome, there were societies dedicated to cover burial expenses for their fellow comrades. Flash forward a few centuries and life insurance starts to look a little more familiar. In the mid 1700’s life insurance was developed in America, and by the 1830’s some of the insurance companies we are familiar with took shape. From here it was refined and became what is known today.
Life insurance, in essence, is pretty simple. You pay a premium every month, and in return the insurance company agrees to pay out your coverage in the event of your death. It can feel a bit macabre or depressing, but it is an important issue to address; as the old adage goes “the only two certainties in life are death and taxes.”
Life insurance is not really for the person receiving the coverage. It’s for the individual’s loved ones-their family. When a provider passes away it leaves not only a hole in the hearts and lives of a family, it can also leave a deficit in their finances. Funeral costs can range anywhere from $5,000 to $10,000. Then there are debts and bills to be paid as well as the everyday living expenses. Having proper life insurance can provide coverage for those costs and bring peace of mind, not only to you now, but to your loved ones as well.
Back in the mid 1970’s 72% of adults in the United States carried some form of life insurance. However, today only 57% of Americans have life insurance. And more than half of those insured don’t have enough coverage to meet their financial needs.
What changed? Why are fewer people getting life insurance?
Most insurance companies will have you do a physical and answer medical and family history questions in order gauge your health. This is one of the reasons getting life insurance when you're younger is a good idea. Typically when we are young we are at our physical peak, which allows for a lower premium- the better your health, the lower your premiums. All that being said, reports show that 4 out of 10 Americans don’t qualify for life insurance. There are a few different reasons why someone might not qualify, but the top reasons usually have to do with poor health that is associated with obesity, high blood pressure, or some form of metabolic disease. The good news is these are factors that are within your control and can be overcome with lifestyle changes and healthy habits.
Acquiring life insurance earlier in life is better than waiting. It's important to consider that the time to get life insurance is before you need it. If you wait until you have been diagnosed with an illness you will likely not qualify for a new policy.
Most people are familiar with the concept of life insurance. The two most recognized are “term” and “whole.” Both policies are designed to pay your beneficiaries in the event of your death. However, there are significant differences between them.
Initially, term life insurance can have lower premiums to start with, which makes it a popular choice. But those premiums go up over time because as you get older your chances of dying increase. The name “term” indicates that the insurance coverage lasts only for a set amount of time. Once the set term of your policy has expired, all the money you paid into it is gone.
Whole life insurance typically has higher premiums, but they don’t go up as you age or if you become ill. The earlier you start a whole life policy the better deal you can get. Whole life also differs from term in that it offers additional perks in the form of “cash value.” When you pay your premium a portion goes into a tax-deferred savings account where it can build up and grow interest, which can help provide more stability in your retirement years.
The goal of whole life insurance is to provide coverage for your whole life.
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“Buy on mystery, sell on history.”
-Old Wall Street Saw;
The Maxims of Wall Street, by Mark Skousen p.41