Really think about getting life insurance
Really think about getting life insuranceNovember 6, 2011, By Scott Lunsford, Chillicothe Gazette.com
You probably have heard the expression "we are born to die." Somebody once joked to me that the death rate is 100 percent. We all will have the same fate.
Will you have a car wreck or a house fire during your lifetime? I bet you carry auto and homeowners insurance just in case you do, right? We are required to have an auto insurance policy, but I bet most of us would have a policy anyway. So, you never might have a car crash or a house fire, but you are going to die. Why is it, then, that so many people refuse to buy life insurance?
I got into a debate recently about which insurance is better, term life or whole life. The easy answer would be the best policy to have is the one that's in effect at the time of death. Some people will say you always should buy term insurance because it is cheaper and you could "invest the difference." So, if the term life premium is $30 per month and the whole life premium is $100 per month, that would leave $70 to invest. Yeah, right. Our savings rate in America is about 0 percent. Most people just don't have that kind of discipline, at least for an extended period of time.
I want to compare a term life policy to a whole life policy so you can understand the difference. For the example, I will use a 20-year term policy compared to a 20-year whole life policy. The insured will be a 45-year-old man, non-tobacco user, purchasing $100,000 of coverage. The premiums are $40.23 per month for the term policy and $205.65 per month for the whole life policy.
So, at first glance, if price is the deciding factor on which policy to buy, then term insurance is the clear winner. The savings per month is $165.42. So, if you had the discipline to save that each month, at the end of 20 years, you should have a nice account built up. I contend that you will not do that, however. The majority of us are not savers.
Let's fast forward to the end of the 20th year. Congratulations to our insured, he did not die. The 20-year term policy has expired. The whole life policy is paid up, which means no more premiums are due. In addition to that, the death benefit, because of dividends, has grown to $122,700. Additionally, whole life builds cash value and the company projection is that the cash value at the end of the 20th year will be $61,039.
Our original 45-year-old spent $9,655.20 during the 20 years on a term life policy and has nothing to show for this outlay. He spent $49,356 for the whole life plan, but if he chooses to cancel the coverage, his return will be about $61,000 -- or $11,644 more than he paid for the coverage. If he chooses to keep the policy in place, he has a $122,700 life insurance policy that doesn't require any additional premiums. Incidentally, the death benefit and the cash value account will continue to increase in value.
Which one should you buy? I have just laid out an example I hope helps you make that decision. If you don't have a life insurance policy, then you are going to create a financial burden for someone at the time of your death. If you already have life insurance, is it the right one?
Remember, the best kind of insurance is the one that's in force when you die.
(Scott Lunsford is owner of Lunsford Insurance Agency in Chillicothe.)
Need help with Life Insurance? Please call us at NOVA Insurance Group (Chantilly, VA) at tel: 703.263.7800, or send an email to: ku@allstate.com
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Labels: Chantilly Life Insurance, South Riding Life Insurance
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