Why you need a personal life insurance policy

What is life insurance?

Life insurance is a contractual agreement between an insurance company and an individual. In exchange for a monthly (or annual) premium, a life insurance company commits to paying a lump sum of money to the beneficiaries named on a life insurance policy after the death of the policyholder.

Why do you need life insurance?

You need life insurance to protect your loved ones, whether that’s your spouse/partner, children, family or close friends. The money the death benefit provides gives your family financial security long after you pass on. Ask yourself: do you want your family to have to come up with your funeral expenses while they’re grieving you? The answer is likely “no.” When you have life insurance, your loved ones receive a tax-free death benefit quickly after you die. Those funds can be used in whatever capacity you need them. Some parents use life insurance to make sure they can provide for their children’s education. Term life insurance can be used as an additional form of mortgage protection. The last thing you want to worry about after your partner dies is how you can afford to pay for your house. Life insurance is a great way to protect your home.

Life insurance is based on risk

A critical point to know about life insurance is that it’s based on the calculated risk. How risky is it to insurance a person? That’s a tricky question to answer, so let’s start with a simpler concept. Think about how you insure a car. Car insurance is based on the year, make and model of your vehicle as well has how many accidents it’s been in and what shape the vehicle is in. Insuring a human is based on a similar concept. The cost of life insurance is based on the overall health of the individual. If you are a healthy person, your cost of insurance is lower than someone who has chronic health conditions. Having health issues doesn’t necessarily prevent people from getting life insurance. It indicates that their policy contains more risk and consequently will cost more money. Life insurance companies want to be able to pay the death benefit when a policyholder passes away; they can only do this if they’re taking calculated risks based upon the health of the policy holder.

I have life insurance through work; I don’t need a personal policy

You may be reading this and thinking “I have life insurance through my job. I don’t need to pay for a policy.” I have news for you: most life insurance policies that you get through an employer are not portable. What does that mean? If you quit your job, or retire from it, you cannot take that policy with you. That’s not the case for all jobs, because some companies have life insurance policies that are portable, but the cost to take your policy with you is likely extremely expensive. So, your homework is: ask your company if your life insurance policy is portable and if so, how much will it cost to take with you when you leave the company or retire? If it’s not portable, reach out to me and we’ll get you set up with a life insurance policy that will protect your family long after you leave your job.

Takeaways

• You need a personal life insurance policy
• Ask your employer if your work policy is portable
• Contact me if it’s not portable for a financial consultation