When I say "life insurance salesman," what image comes to your mind? Probably nothing positive. I spent a short part of my career selling life insurance and it was miserable. Why?
Nobody wants to buy life insurance. The application process is difficult and complicated. Worse, the very concept of life insurance forces you to think about something most would rather not: your own death.
Once you get your life insurance, you never want to see your agent ever again. They are an unwelcome reminder of your mortality. When the agent does come around again, you probably won't see them. Because you are dead.
I have great respect for the sales warriors out there who tirelessly get people to insure their own life. It is a thankless job, but incredibly important. Without getting nudged along, most people will never obtain it, and the consequences could be devastating.
Whenever someone dies, it is deemed inappropriate to ask, "Did he/she have life insurance?" But for many people the answer to this question could change the rest of their lives.
If a mother is at home raising three children, and her husband, who was making $70,000 a year, were to die, she is suddenly in a dire situation. I can’t emphasize this enough. She could go from a normal life to a life of poverty.
Actually, let me stop right here for a very important public service announcement: If you have a child younger than twenty-one, you need life insurance on the life of both parents. Period. End of story. It is remarkably irresponsible to live without this safety net. If you have grandchildren, call their parents right now and make sure they are protected.
If you are at home raising children, your death would put a financial strain on the household, as the children would need care going forward. You still need life insurance even if you are not making an income.
How much insurance do you need? If you die, life insurance needs to be able to replace your income. Not just for one year, but for the foreseeable future.
If you are making $50,000 a year, you need to get $1,000,000 of insurance. Why? Remember it’s appropriate to withdraw 5 percent from your portfolio of stocks and bonds each year. So if you make $50,000 you need $1,000,000 of insurance. If you pass away, your spouse or beneficiary can (and should!) take the million bucks, invest it, and take a yearly distribution of $50,000. It might seem like a big number, but it’s just simple math. We will talk soon about how remarkably inexpensive life insurance can be.
There are basically two kinds of life insurance. The kind that lasts forever and the kind that lasts for a limited term. The "lasts forever" kind is far more expensive. With this kind of insurance, the insurance company knows that, at some point in time, they will have to pay up … unless you live forever.
The far more popular "term insurance" is, in my estimation, the right solution 98 percent of the time. Term insurance is simple.
For example:
$100,000 of 20-Year Term Life Insurance means that if you die during the first 20 years, the company pays $100,000 tax-free. If you live longer, the policy ends.
This kind of insurance is far cheaper because most of the time the insurance company doesn’t have to pay anything. The term ends before you die.
To give you an idea of how inexpensive these policies are:
A healthy 25-year-old man can get a $1,000,000 policy for twenty years for $40 per month. (How could young parents not buy these policies?)
A healthy 30-year-old woman can get a $1,000,000 policy for twenty years for $30 per month (it’s cheaper because women live longer).
A 50-year-old man can get a $1,000,000 policy for twenty years for $150 monthly. The insurance company starts to get a little nervous that you will die during the twenty-year period.
A 70-year-old man can get a $1,000,000 policy for twenty years for $2,000 per month. Now the company is really afraid that you’ll die during the term.
Whenever you buy life insurance, you have to go through an underwriting process. This is where the insurance company checks you over. You will have to turn over medical records, and someone will come out to your house to take blood, urine, and other vital statistics.
These examples above all assume you are in good health. If you have pre-existing conditions the price could double or triple. In fact, many people can’t qualify at all. If you’ve had cancer, a heart attack, or a stroke, you might never be able to get insured.
The bottom line is this: If someone is financially dependent on you, you need life insurance. I know it's not fun to think about. Don't think about your death; think about your beneficiaries and their protection. Don’t make this more complicated than it is. Now go out and get those grandkids protected.
Be Blessed,
Dave |
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