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Life Insurance: Back to Basics

Every six years, LIMRA, a research group focused on the insurance industry, conducts and releases a survey regarding insurance trends in America.  The most recent report detailed several disturbing trends in the life insurance arena, including the fact that life insurance ownership is at a 50 year low, with about a third of U.S. households going without this safety net.  Industry leaders found this to be surprising as prices for policies are cheaper than ever before.  In the Chicago Tribune article, “An inexpensive life insurance policy can avert financial disaster,” by Gregory Karp, LIMRA CEO, Robert Kerzner explained why he believes half of all households feel they need more life insurance.  He claims that many aren’t educated about the choices they have, and when people are unsure, they tend to do nothing.  With many American families feeling the pinch of the recent recession, several feel that a policy is out of reach because it just won’t fit in their budget.  Understanding the basics of life insurance could help many realize the importance of obtaining a life insurance policy and how affordable it can be.

Life insurance is basically a contract that commits to paying money to a beneficiary if you die while the contract is valid.  Term life insurance is a policy that you purchase for a set amount of time, such as 10, 20, or 30 years, in which you pay premiums for the life of the policy.  This type of insurance is typically the most affordable, as compared to whole, universal, or variable life, which often include investment components.  In order to determine if you need life insurance, experts recommend asking yourself if anyone would miss your paycheck if you were no longer around to earn it.  A small policy could pay for funeral costs and to settle any outstanding debts, while a larger one could help sustain your family if they are dependent on you financially.  Determining how much insurance to purchase is important when deciding to buy a policy.  The general rule of thumb is six to 10 times your annual income; however the true answer depends on what your goals are.  Do you hope to be able to pay off the mortgage on your home? Maybe you’d like to be able to pay for your kids’ college.  Unique circumstances will influence how much is enough.

Most people would agree that having a life insurance policy is a good idea, but are concerned about how much premiums might cost.  In truth, it can be very affordable, with a 30-year-old spending about $3 a week on a $250,000, 20-year term life insurance policy.  But the final cost of your policy will depend on many variables.  Purchasing a policy requires some paperwork, and often a medical exam.  Costs are directly related to the risk in which you’d pass away during the contract, therefore the healthier and younger you are the better rate you will receive.  Many industry leaders will recommend shopping around and comparing quotes to find the best policy that suits your needs.  There are several online resources available to assist you in any and all your life insurance needs.  The information is out there, and educating yourself to the basics of life insurance could save your family from financial ruin.

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