How protected is your family in the event the unthinkable happens? One of the most devastating situations a family can find themselves in is the untimely death of a spouse. In that moment, which nobody likes to discuss, two types of deaths occur: physical death and financial death.
We don’t have much control in protecting the physical death; but financial death is something we do have a little more control in. Preparing for financial death is how you prepare your family to handle: funeral costs, paying bills and ongoing living expenses, paying off debt, credit cards, the mortgage, financing future needs like your children’s education and retirement. Those expenses become much more difficult to handle when the income of your deceased spouse stops.
How do you prepare for such a devastating event?
When used correctly, life insurance can be the most valuable protection you can use to fill the financial void caused by premature death. Life insurance is simple to buy, however, not all life insurance is equal when it comes to protecting your family.
So how do you make sure your getting the right kind?
Generally, there are two main types of life insurance; term life and whole life. There are a few important differences you need to know before making an informed decision. Term life is pure insurance. It’s the best way to get the most coverage for your family while keeping the monthly premiums affordable. Term insurance does not accumulate any type of cash savings within the policy. On the other hand, whole life is more expensive which usually results in lower coverage for the family while paying higher monthly premiums. The main difference in whole life is there is a separate savings account that accumulates money over time.
While saving money for your family’s future is smart; doing it within a life insurance policy is usually a financial mistake. There are often very confusing rules placed on the savings account associated with whole life policies. Rules which most people do not thoroughly understand. Additionally, when measuring the performance of the savings within the whole life policy compared with a properly set up savings/investment account, generally, the savings/investment account out performs the growth of the savings within the whole life policy. Furthermore, there are often far less confusing rules and penalties than that of the whole life insurance policy.
The main takeaways:
1) Making sure your family is properly protected in the case of an emergency is a good thing.
2) Investing for your financial future is a good thing.
3) Doing both within the same product; not the most effective method for most families.
*Make sure you shop around and you understand what you’re actually paying for before making a decision on which is best for you.
Blog By: Ryan VanBuskirk-Project Prosper Volunteer