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Life Insurance: Something You Need, But Hope to Never Use

Something You Need, But Hope to Never Use; Life Insurance - TaxACT

What is it that you really need, but you hope to never use?

The answer? Life insurance, of course.

We want our family to be taken care of in the event of a tragedy, that’s why we purchase life insurance polices. But, at the same time, we hope to never cash in on a policy for ourselves or our spouse and children.

When my husband and I were first married, I left a job as a broker to become the wife of a fighter pilot. He had two children already, and we added five more in seven years.

We also moved 11 times in 13 years, so needless to say, I couldn’t sustain a career as a broker and take care of all those kids while he was deployed.

Therefore, when it came time to discuss life insurance, we knew we had to insure the primary breadwinner.

Insuring Mom

At the time, I was working as a full-time mom. Because I wasn’t bringing in any income, we figured I didn’t need much more than a burial policy. Boy, were we wrong!

I realized my children would needed me insured should anything happen so my husband could continue to work and provide a living for the family.

According to a recent survey on Salary.com, the average stay-at-home mom works 96.5 hours on household and childcare duties. If paid for her 40 hours plus 56.5 hours of overtime, a stay-at-home mom would earn $118,905.

If you want to know how much a working mom is worth, you can calculate what it would take annually to cover all the work she does for your family.

You can also use a life insurance calculator to determine how much insurance you and your spouse need.

Insuring Kids

What about insuring your kids?

I’ve always said we should never financially benefit from the unthinkable experience of losing one of our kids. I still believe that philosophy.

However, it’s also important to have your child insured with enough coverage to pay for the expenses of a burial.

Many policies have riders that can be added onto a parent’s policy to cover a child for up to $10,000 or $15,000.

Life Insurance 101

So how do you know what kind of coverage is affordable and the best fit for your family?

Here’s a quick guide to help you navigate this conversation with your spouse. We’ve also listed some sample rates* as well.

*These rates are for a male age 35 at the best risk class available for these products.

Risk class is determined by factors such as tobacco use, health, family medical history and lifestyle.

Your actual premium will be determined by underwriting review. Rates may vary by state.

Level Term

  • Advantages: Level payments over specific period, usually 5, 10, 15 or 20 years; may be convertible to a permanent policy. Up to 30 years in terms of length of coverage.
  • Disadvantages: More expensive than ART (Annual Renewable Term) in early years, less expensive in later years. You do not build cash value on the policy.
  • Sample rate* – $14.15 per month for $250,000 and 10 years.

Whole Life (permanent)

  • Advantages: Fixed premiums; cash value you can borrow against; possible dividends; tax-deferred earnings; guaranteed death benefits. Coverage is for your lifetime.
  • Disadvantages: Initially higher premium than term insurance; little flexibility in premium payments.
  • Sample rate: $84.57 per month for $100,000.

Universal Life (permanent)

  • Advantages: Flexible premiums; tax-deferred earnings on cash value; access funds; different options allow cash buildup or insurance protection. Coverage is for your lifetime.
  • Disadvantages: If interest rates fall, low cash value buildup may cause policy to lapse unless you add money.
  • Sample rate – $70.74 per month for $100,000.

Combination

  • Advantages: Flexible premiums; different options allow cash buildup or insurance protection. Coverage is for your lifetime. Guarantees insurability with whole life policy while offering lower premiums with term policy.
  • Disadvantages: More coverage but more expensive premiums.
  • Sample rate – $98.72 per month for $250,000 10-year term and $100,000 Whole Life

SGLI (Servicemembers’ Group Life Insurance)

  • Advantages:you can obtain $400,000 worth of SGLI plus the added coverage provided through SGLI Traumatic Injury Protection. Coverage includes battlefield operations.
  • Disadvantages: If you separate from the military without the benefit of a retirement, you no longer qualify for this policy.
  • Sample rate – $29 a month for a military member.

Remember you can add on children for additional premiums when purchasing your own life insurance.

There are some policies that allow you to purchase a benefit to pay premiums if you become disabled.

With these policies, you won’t have to worry about your life insurance coverage being cancelled in the event of a health crisis.

Sit down with your partner and conduct a Sixty Minute Workout with life insurance as the topic on the table.

It’s a good way to take care of your family in the future and give you peace of mind as well.

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About Ellie Kay

Ellie Kay is a regular expert on national television with ABC NEWS NOW’s Money Matters and Good Money shows. She is also a national radio commentator, a frequent media guest on Fox News, and CNBC, a popular international speaker, and the best-selling author of fourteen books including her newest release, The Sixty Minute Money Workout (Waterbrook, 2010). For money savings links visit Ellie's blog.