You have car insurance to help if you get into a crash.  You have health insurance to help if you get sick.  You have dental insurance to help keep your pearly whites white.  You have pet insurance to help if Fido develops an allergy.  All of these products cost money, but help you financially in the long-run.  Life insurance is arguably the most selfless insurance product because you really don’t buy it for you – you buy it for those you leave behind when you die.  Let’s talk about three financial risks life insurance helps mitigate.

  1. The Death Risk

Life insurance’s main job is to provide cash when your loved ones need it most – when you no longer provide a paycheck because you’re dead.  The death benefit life insurance provides allows your beneficiaries to pay for your funeral; it can pay bills and college tuition.

It also gives your beneficiaries time to sell your liquid assets such as a business or real estate.  On the other hand, it can also be set up to ensure they don’t need to sell off any assets and that business or home can be passed down to the next generation.

  1. The Serious Illness Risk

Hey!  Good news!  Americans are living longer than ever.  The bad news is that that means life allows more time for serious illnesses to develop.  A serious illness can hit you pretty hard financially if you aren’t prepared for it.

It’s a little known fact that most life insurance policies automatically include a little extra bonus that can help with providing money to you while you are still alive if you develop a serious illness.  This bonus is called an accelerated death benefit rider.

This rider gives you the option to get paid a portion of your policy’s death benefit while you are still alive if you are diagnosed with a terminal illness.  The funds can be used for medical treatment or even a once-in-a-lifetime trip to enjoy time with your loved ones.

  1. The Probate Risk

Some people think that all they need is a will and then their loved ones are all set.  While drafting a will is a great start to estate planning, it often has to go through probate before its affects take place.  And unfortunately probate rarely benefits your beneficiaries and it always costs them money.  If you die with any debt, the probate process will require your debts and taxes to be paid before distributing assets to your beneficiaries.

Life insurance, however, can be easily set up to avoid probate and taxes.  With clear beneficiary designations, the life insurance death benefit can pass onto them outside of the probate process and the funds are untouchable by your creditors.

To avoid any potential legal issues, make sure you designate your life insurance beneficiaries carefully.

  • Designate not only primary beneficiaries, but contingent beneficiaries as well just in case the primary predeceases you or is unable to accept the insurance money.
  • Don’t forget to update your beneficiaries after important life events such as marriage, divorce, and births.
  • Don’t name minor children as beneficiaries. Instead consider passing assets to a trust that keeps the assets safe until the children are grown and responsible.
  • Don’t name a mentally disabled person as a beneficiary because doing so could cause him or her to lose any government assistance he or she may be receiving.  Pass life insurance proceeds to a trust for the benefit of the disabled person.

Thankfully life insurance can help mitigate these finance risks affordably as well.  Many overestimate the cost of life insurance by 3 or 4 times.

Monthly Premiums for a $250,000 Term Life Insurance Policy
Insured: Healthy 30-Year-Old Female
What People Think It Costs What It Actually Costs
15 Year Term = $33 15 Year Term = $11
20 Year Term = $39 20 Year Term = $13
25 Year Term = $48 25 Year Term = $16
30 Year Term = $54 30 Year Term = $18

 

Monthly Premiums for a $250,000 Term Life Insurance Policy
Insured: Healthy 40-Year-Old Female
What People Think It Costs What It Actually Costs
15 Year Term = $39 15 Year Term = $13
20 Year Term = $48 20 Year Term = $16
25 Year Term = $66 25 Year Term = $22
30 Year Term = $78 30 Year Term = $26

 

Monthly Premiums for a $250,000 Term Life Insurance Policy
Insured: Healthy 50-Year-Old Female
What People Think It Costs What It Actually Costs
15 Year Term = $78 15 Year Term = $26
20 Year Term = $96 20 Year Term = $32
25 Year Term = $135 25 Year Term = $45
30 Year Term = $162 30 Year Term = $54

Your life insurance premiums are heavily dependent upon your age and health.  The costs in the tables above show what term life insurance actually costs if the insured is offered the best possible life insurance risk rating: Preferred Plus.  However, even if your health isn’t incredible, the cost of term life insurance is still very reasonable.  Let’s say the 30-year-old woman didn’t have stellar health and she was only approved at Standard, a 20-year policy would still only be about $20 for her.  Still much cheaper than people think it costs.

Don’t just take our word for it though, run a term quote on yourself and see what numbers you come up with.  Our term life insurance quoting tool is incredibly easy to use and we don’t need any contact information.  Take your time, play around with it, and see how much coverage and which term length makes the most sense for you.

 

Photo credit to: Edu Lauton

 

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