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Life Insurance - What You Need to Know

I met my wife in 2012.

It was a blind date that I, quite frankly, did not want to attend.

I had recently suffered a relatively severe concussion and was dealing with post-concussion syndrome. I was tired that day and just wanted to lie on the couch after work.

For some fortunate reason, I decided to heed my father's words, who often said: "Find a reason to say yes to something."

It was one of the best decisions I ever made.

By November 2013, we were married and bought a house the following summer. By December 2014, our first child was born.

Then, between November 2013 and December 2014, we completed another essential task that I, also quite frankly, did not want to do.

We bought life insurance.

In simple terms, life insurance represents an agreement between yourself and the insurance company. If you pass away, the insurer will pay a tax-free sum to your beneficiaries.

At some point in your life, you will need to consider life insurance. You could be like my wife and I, with a new dependent and a mortgage in our life.  Or you could be a parent who is interested in purchasing insurance for their child as a way to provide intergenerational wealth. 

It can be an overwhelming process, and many do not know where to start. The questions are numerous and quite common:

- What's the difference between Term and Permanent insurance?

- What type of life insurance is right for me?

- How much insurance do I need?

- What does life insurance cost?

In the first part of our Insurance Education series, we will tackle these questions at a high level as we begin our dive into life insurance.

What are the different types of life insurance?

There are two key types of life insurance: term and permanent. We will examine each of them in greater detail here.

Term insurance is the most basic type of insurance.  It provides a basic death benefit for a set period. The premiums are also guaranteed for a certain length of time (the "term").

Permanent insurance provides coverage for life (not a set period), often with level premiums and the potential for a cash value build-up.

It can take many forms, and we will focus on the two most popular types: Whole life and Universal.

What type of insurance is right for me?

As with many facets of financial planning, the answer to this question is often "It depends."

To start, you'll want to ask yourself why you are buying the insurance in the first place.

Are you a young couple who just had their first child and recently bought a house?

Term insurance is likely your best bet.

Are you a parent who is interested in getting insurance on their child for inter-generational wealth transfer?

Whole life insurance might be right up your alley.

Before deciding, you will want to consider such factors as the length of time you will need the insurance for and your budget to figure out what's best for you.

How much insurance do I need?

When discussing insurance with clients, I will ask them how much insurance they think they need. It usually amounts to a round number of sorts. 

When pressed on how they came up with that arbitrary figure, the rationale provided is usually something along the lines of "it sounded about right".

Picking a number out of thin air is probably not the best strategy to determine how much life insurance you and your family need.

To determine how much life insurance you need, your best bet is to consult a trusted financial planner or insurance advisor. They will review your situation, complete a comprehensive needs analysis and walk you through the different insurance carriers to find the solution that's right for you.

What does life insurance cost?

A common misconception is that life insurance is too expensive. 

I wish I had a dollar for the number of times that a client has said to me: "Really? That's far less expensive than I thought."

Premiums are based on a few factors, most notably age and health. 

Insurers will also take your smoking status, medical history for you and your family, along with whether you moonlight as a stunt person in your spare time, into consideration when setting your rates.

Given this, it makes sense to get insurance while you are young and healthy. The older you get, the more expensive your premiums will be. Your chance of developing a health issue will also increase as you age.

Life insurance can be used as a risk management solution for all kinds of situations. Over the coming weeks, we will address the questions above (and more) in greater detail.

Please join us.

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