in one of the steepest recessions of the
last 50 years. Families are making
tough decision on what to trim from
their budgets and life insurance
eventually comes up on the radar.
People start to look at the premium they
pay for health, life insurance, etc.
The whole point of life insurance is
that you're protecting against a future
risk. Cancelling the coverage
early defeats the purpose. Let's
look at why term life insurance works so
well during tough times.
First, let's take a quick refresher
course on why life insurance is so
important. It's easy to look at
that monthly premium and say, "Well,
I've been fine till now...do I really
need to keep paying for life insurance?"
It's human nature and especially
American nature to put off the future
for the now (look at our credit cards
and savings rate) but the risk of
not having life insurance is too great
in relationship to the cost of having
affordable term life in place.
it's core, life insurance is about
replacing income over a long period of
time in the event of someone passing
away. For a new family,
we're potentially talking about 100's of
thousands of dollars if not millions.
In our "without life insurance" article,
we address the difficult decisions
surviving family members would have to
make without this type of protection.
It really can throw a family into a
tailspin at quite possibly the worst
time in their life! It's bad
timing and it's bad planning. Many
of the people we helped sign up for term
life insurance recently did so after witnessing the
unexpected passing of a friend,
co-worker, or family member and the
result it had on the family.
Nothing drives people to action quicker
than seeing what ACTUALLY happens in
such a situation. Unfortunately,
people need this visceral experience to
understand the impact of not having
back to our original intent.
We now have established the reason life
insurance is so important. What
about the economy's current downturn and
potential future financial issues that
might hit any given family? That's
why term makes so much sense over
options such as whole life insurance.
Term's greatest advantage in a bad
economy (or good one for that matter) is
the fact that it's so affordable.
A $300 monthly premium for whole life is
probably going to hit the chopping
block. A $35
term life premium is
much more manageable. Whole life
insurance is always more expensive than
term life and this is exactly what's at risk
when the economy takes a downturn or you
are between jobs. The alternative
is to buy much less whole life coverage
but then this defeats the purpose of the
core reason for life insurance to begin
with. $50K probably is not going
to help much with two young children and
insurance companies offer many bells and
whistles to whole life policies to try
and address the issue of cost in tough
times through various
riders and cash values. These tend
to additional costs or provide a false
sense of security since the the
underlying cost structure of whole life
makes it expensive. A strategy to
mirror the effects of these various
constructs is to
purchase term life and
invest the difference in premium.
Cover the big risk (loss income from
passing away early) and self-insure the
add-on's. You can either have cash
value in a life insurance policy for a
fee or cash value in your
policy is lapsed during extremely
difficult times, you would rather have
paid the lower life insurance rates than
the much higher whole premium amount.
The very advantage of term life
insurance...a low rate...makes it
extremely well-suited for times in a
person's life when financial health is
on life support.