Millennials and life insurance is a taboo topic in our society. Most think we know nothing about it and don’t need it right now. Most of us aren’t married or purchased a house, so why would we know anything about the topic? And I know the topic of insurance is boring but I’m going to make this short, sweet and simple. So make sure you pay attention to these four things that will help you understand life insurance more now than ever.
1. Coverage is Cheaper Than You Think.
Simply put, the younger an individual is the less of a risk they are considered. Most people wonder why they should buy a policy or continue to put it off to the next year. Which in their right is a natural thought, the chances of an untimely death are not likely *knocks on wood*. But if you view it from a finance point of view it’s better, as well as, cheaper to invest in life insurance now. Buying a permanent life policies will help lock in a low rate for millennials and it’s ideal to have the policy before you need it. Not only do you save cash down the road but also it gives cash more time to build up inside the policy. Don’t worry; I go over building cash inside a policy later on.
2. How to Decide How Much You Need?
Stereotypically the average life insurance holder is someone whose income is at or above middle class, a married male and has a family. So basically, your typical nuclear family. The common reason of why it’s needed is women tend to stay home; therefore they don’t have an income to replace in the time of an untimely death. Men are usually the bread winners so the focus is on the replacement of their income. That concept is quickly changing, as time goes on women are becoming the main bread winners and marriage rates are declining. I say all this to say if you don’t look like the average life insurance buyer, that doesn’t mean you don’t need it.
Before deciding on purchasing life insurance there are three imperative questions to ask yourself.
- Who depends on my income or my service? If your spouse, family or anyone depends on you to handle certain tasks, then life insurance would be needed so they can avoid any disruptions in daily life.
- Do you need life insurance for just a few years or until death? Term life insurance comes in small increments of time (1, 5, 10, 20, 30 years) because it’s meant for temporary needs. Those needs can be the life of a home loan or covering education costs for children. Permanent life insurance is intended to payout after the death of the insured.
- Can you afford the premium? Insurance companies profit off these policies when the policy is never used. You can pay 30 years for a policy and if you can’t pay the policy cancels just like that. The insurance company still has your 30 years of premium and you no longer hold the policy. Play with your budget to determine if the monthly premium is affordable. It’s also wise to talk to an agent about endorsements that pay the policy if you become disabled.
If you are able to answer these questions it means you most likely need life insurance. There are more questions to ask but in the effort of saving time, I would suggest talking to a licensed life insurance agent.
3. Building Cash Value Inside a Policy.
When life insurance came about the government had a difficult task on establishing regulations that would stop individuals from taking advantage of the policy. Present time it’s no longer feasible to get rich off these policies but nonetheless individuals can take advantage of the cash value. A simple explanation about cash value is you pay a premium where a percentage is paid to the premium and other percentage is paid to an investment account
Example: Tony Stark has a life policy for $100,000 and pays a monthly premium of $200. Out of that premium 80% will go to the actual premium and 20% will be placed into a separate account where the cash value is built. As time goes on the cash value amount will equal and grow more than the cash value. Cool, right?
The insured will have several options for the cash value. Options may vary with the company and common options can be:
- Cash can pay the premium until depleted. This comes in handy for insured’s who are no longer able to afford the premium
- Take out a loan against the cash value. Ideal if the insured has no other alternatives for borrowing money.
- Adding cash value amount on top of the death benefit. If the insured wishes to leave more cash for the beneficiary, then ideally the cash value will do just that. Helps prevents obtaining a new policy at a higher premium rate.
- Make a withdrawal from the amount. When choosing this option it is best to discuss with your agent about ramifications.
4. Beneficiary Love.
Simply put, the beneficiary is the receiver of the payout after the insured passes away. When I worked for an insurance agent he always said “The day when a loved one dies should be your lowest day emotionally but your best financially.” The usual beneficiary is a family member, as it should be in my opinion. When the life policy pays out it helps pay for immediate expenses such as funeral cost, estate tax, paying off debts and other regular bills. Afterwards if any money is left that will allow loved ones to continue grieving as life goes on.
A life insurance policy isn’t just for leaving money for family though, it can go to a charity as well. Granted it will be a little bit more complicated, however it’s not uncommon for a charity to receive a sizable donation from a deceased individual. Another option is to designate the money to pay for a when a deceased business partner passes away. The money will be used to pay for the business partner shares and helps make the passing simple for a business transition.
Way back when in my salesman days I sold life insurance for State Farm. It’s truly a hard sale when it comes to selling a product that is intangible. I saw plenty of people come in and out with dozens of excuses of why they didn’t need it. I believe it always comes down to whether you care about your legacy or not. A legacy is growing seeds in a garden that you won’t see harvested. Your legacy (family, charity or business) will of course miss you and there is no doubt about that. The bottom line comes down to if you want to leave them with a better start or not. I hope the information helped in some type of way and next time you hear millennials don’t need life insurance you can school them.
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