Have you ever wondered whether or not you need life insurance?
Most people have.
Watch the video below to learn more about the three main reasons you might consider life insurance as part of your overall wealth management plan and the two crucial steps you need to take if you decide you need life insurance.
Problem with the video? A transcript of the video can be found below or you can view the video by clicking here.
“Do I Need Life Insurance?” Video Transcript
“Have you ever experienced this situation?
You’re eating dinner and you get a phone call. It’s your second cousin, ex-brother in law, or maybe even some guy who says he sat behind you in high school Algebra, and he tells you he just got a job at XYZ Financial Company and wants to set up a meeting for you to learn more about the life insurance products that he offers through his firm.
Now, if you’re like most people, in the back of your mind, you’re probably thinking one of two things:
1. Who did you say you were again?
and/or
2. Do I even need life insurance?
Hi, I’m Tyler Gray, Founder and Principal Financial Advisor here at SageOak Financial and although I can’t help you out with the first question, on this week’s “Ask an Advisor,” we’re going to address the second question on that list: “Do I need life insurance?”
Now, typically, I’ll get this question when someone is experiencing a transition in their life.
For example…
- You’re retired now and you’re reconsidering whether or not you need to keep an old life insurance policy
- Or maybe you recently had your first child and are wondering if you need to get life insurance for you or your new addition to the family
3 Reasons You Might Need Life Insurance
Regardless of the situation, there are three main reasons you might need life insurance and they are…
1. Pay for final expenses
In 2012 the average cost of a traditional funeral was somewhere in the neighborhood of $8,000-12,000 and $3,000-5,000 for a cremation, which isn’t a ton of money, but it’s not exactly change you’ll find buried underneath your couch cushions any time soon.
At least not my couch cushions.
With that said, my philosophy on insurance is that the purpose of insurance whether it’s life insurance, disability insurance, or any other form of insurance…the purpose is to provide in circumstances that would cause extreme financial hardship if that insurance was not there.
Would the funeral expenses from your premature death cause undue financial hardship for someone you love? If it would, then it might make sense to take out a life insurance policy to cover your final expenses.
A question I get a lot is what about those baby insurance policies new parents get in the mail? Are those worth it?
Well, the same logic applies here. If your child, heaven forbid, were to pass away tomorrow, and paying for their funeral would cause undue financial hardship for you and your spouse, then a small insurance policy on your child’s life might make sense for some people.
However, for most of my clients and prospective clients, you’ve probably got enough money in savings that would cover those expenses, so your money might be better utilized elsewhere.
So that’s the first one, consider life insurance if you think you’ll need money for final expenses.
2. Income replacement for survivors
This is what most people think of when they think of needing life insurance.
For example, maybe you’re the sole breadwinner in your family and your spouse stays home to take care of the kids. In that situation, I probably don’t need to convince you that you need life insurance on your own life to help provide for your family in case something happens to you.
What you might not realize though, is that even if your spouse doesn’t make any income, it still might make sense to get life insurance on their life as well. If they stay at home to take care of the kids, for example, and something happens to them, then you’ll probably either need to stop working to stay at home with the kids yourself OR you’ll need to pay someone to take care of the kids while you work.
Either way, you’ll need money to do that and that’s where a life insurance policy might come into play.
Bottom line, if you have someone who depends on you for their well-being then you definitely need to have a plan in place if something where to happen to you and many times that plan involves some form of life insurance.
Lastly, another reason you might consider having life insurance is…
3. Provide liquidity for your estate
What do I mean by that?
Well, in this case, the term “liquidity” refers to how quickly something can be converted to cash.
For example, a checking account is very “liquid” because it is basically cash sitting in an account, whereas your house isn’t very “liquid” because it would take a lot of time to convert it to cash, at least if you didn’t want to take a big hit in value.
So, for example, maybe the majority of the value of your estate is in a business that you own, which isn’t very liquid. In that case, you might need life insurance so that your heirs don’t have to sell the business at a loss to pay any estate taxes that are due.
Or maybe you’re a partner in a medical practice or law firm, and one of your business partners dies. It might make sense to have a life insurance policy on each of your lives so that there would be cash for a buyout of your or your partner’s stake in the business in the event of someone’s premature death.
Whatever the reason though, liquidity after death is a good reason that you might need life insurance.
There are a few other reasons you might consider life insurance, but these are the three main reasons.
“I need life insurance, now what?”
1. Get multiple quotes from several highly rated insurance companies.
An easy way to do this is by contacting a licensed, independent insurance agent in your area. You can find one near you by visiting TrustedChoice.com. They’ll be able to give you a variety of quotes on different types of life insurance from a handful of different companies.
2. Talk with your financial advisor BEFORE purchasing life insurance or any other insurance product.
That way you can make sure any insurance product you buy fits in with the overall goals you have for managing you and your family’s wealth.
Again, I’m Tyler Gray with SageOak Financial. Thank you for watching this week’s episode of “Ask an Advisor.” If you have questions about this or any other topic related to managing your wealth, feel free to email me at [email protected].
Thanks again and we’ll see you next time!”
