Are you looking for more information on life insurance for your young family? In this article, I will introduce some tips to help you more confidently purchase life insurance. Whether you’re looking for coverage for yourself, a loved one, or your children, this article will help you find the best overall package for your specific needs. I promise to help you understand your options, why you should consider purchasing life insurance, and who can help you get the best deal. Without further ado, let’s begin!
Why Do Families Need Life Insurance?
Life insurance is an integral part of your financial planning strategy as a young family. Without life insurance, some of the most unexpected tragedies can have long-lasting economic effects on your family’s lifestyle and survival. I’ve listed a few reasons below why life insurance for young families is so important.
#1 – Financial Security (leave money behind) These days, both spouses work hard to earn an income, meaning that the financial consequences will be immediate and often long-lasting if one spouse passes away. Perhaps you won’t be able to send your kids to your preferred school, or you’ll have to downsize to save money. A sudden lack of income can have dramatic and emotional consequences that you might not have thought of before. Therefore, the number one reason that many families own life insurance is to ensure their family remains, at the very least, financially comfortable during the most tragic of circumstances. This is why I purchased life insurance. I love my children and in my family. I’m the sole earner. Without me, my family would struggle to afford even basic necessities. That’s why I have to make sure that I’m covered with a significant amount of life insurance.
#2 – Debt Payoff (mortgage) Another good reason for life insurance is to cover any debts or obligations such as a mortgage on a house. These days, a mortgage can be several digits (in the six figures)! If one of the breadwinners dies, it can mean the difference between staying in your family home versus downgrading to a smaller, cheaper house. For children at this emotional time, your family home represents so much more than just a building. A life plan can be designed with your mortgage in mind, meaning your family would never have to worry about losing their home should the worst happen. If you have a mortgage and a family who depend on you, life insurance is an absolute must.
#3 – Final Expenses “Final expenses” refers to things like burial costs, cremation costs, and any other additional expense associated with dying. An insurance agent can design a life insurance plan to cover those costs so you can rest assured that your final expenses won’t burden your loved ones. Nowadays, funeral arrangements can cost anywhere around $5,000 to $15,000 (possibly more). Having life insurance set aside for funeral expenses will be a massive weight off your shoulders.
#2 – Work with a Broker to Buy Life Insurance (not a captive agent)
As a young family, it’s important to recognize that your expenses will continue to grow. Therefore, making sure you work with a reputable agent who secures you sufficient, quality coverage is essential. You definitely shouldn’t work with any random agent you meet off the street. Sometimes agents push products onto their clients that aren’t necessarily the best fit. That’s why, in this section, I plan to explain the difference between a captive agent and a broker.
Captive Versus Broker – What’s The Difference?
A broker’s job is to shop the major life insurance companies and find a few options to choose from that suit your budget and requirements. On the other hand, a captive agent only represents ONE insurance company. This means they often prioritize the company first – not the client. Hopefully, this demonstrates why working with a broker is a smart choice. With a broker, you’ve got a far better chance at securing a more favorable deal.
What about buying insurance sight unseen? This is a valid question. And of course, it might seem easier to avoid the middle man and buy insurance online. However, there are consequences to using platforms that eliminate the need for a broker. The problem with many of these programs is that they cannot look at multiple options for coverage and compare them in the same way a broker can. In a sense, you’re employing an AI (computer) to understand your human concerns. You might as well work with a captive agent because these online insurance platforms tend to cause the same sort of issues.
Fine Print Considerations A life insurance policy is a contract. And like any contract, you must understand how the fine print works. So, let’s go over the most common issues associated with applying for life insurance (that you would find in the fine print)!
Temporary and Permanent Coverage – What’s the Difference?
You see, there are two different types of life insurance products available for young families: temporary and permanent. Temporary coverage, known as “term life insurance,” is just like you’d imagine. It only lasts for a set period. But, you usually get more coverage for your money. More bang for your buck! Term insurance is perfect for temporary problems and is more cost-efficient on a premium basis upfront. Think income replacement or paying off your mortgage. For instance, once you pay off your mortgage, you won’t need the insurance anymore. Many Americans with young families opt to choose term insurance to cover these financial concerns should the worst happen unexpectedly.
Then there’s permanent coverage. Permanent coverage is, as the name implies, ideal for permanent issues. For example, everyone is going to die at some point. It’s not a question of if – but when. That’s why it makes sense to purchase a permanent plan like “whole life” or “universal life.” Also, you can use life insurance to fund a tax-free form of retirement. To do this, you use the cash value basis in a permanent policy to pay out tax-free income. Interesting, right? If you would like to find out more about the different ways you can take advantage of life insurance, checking out a whole life or a universal life insurance plan is a good idea. These products are both designed with cash value. They accumulate interest on dividends and can be custom-tailored as a retirement income solution rather than solely a death benefit pay-out.
First-Day Full Coverage or Waiting Period – Explained
This is another crucial element to any insurance policy that can catch you out in the fine print. Of course, this is less of a problem if you secure a great plan with a broker. But if you decide to buy online or via a TV ad, make sure you don’t have a waiting period. Some policies will NOT cover you fully from day one. And unfortunately, it’s common to discover a two year waiting period in the fine print (even if you’re in excellent health)!
Price Lock or Future Price Increases – Explained
If you buy through a broker, you’ll likely sign a level term life insurance plan that locks in the price for the duration of your policy. For instance, I have a 30-year term insurance plan, during which my premium can NEVER increase. However, this isn’t always the case. Some insurance plans have price increases built-in every five or ten years. Again, this is more common with insurance companies that advertise on TV or send you direct mail. But still, this is extremely frustrating since it’s not that difficult to secure a quality plan with a “price lock” that guarantees your premiums will never go up.
Exam or No Exam – What Should You Choose?
One of the few things that you’ll have to consider is whether or not you want to take an exam. I say “want” because it’s commonly not a requirement anymore. There are insurance policies available that do not require an arduous medical exam. Of course, you are welcome to take one if you want to. Plus, you’ll likely get a better deal if you do. If you decide not to take an exam, the insurance company will base their decision on your health history and prescription records. In this situation, you’ll probably end up paying more per dollar of coverage since your insurer doesn’t know your “current” health. I opted for an exam because I know, as an insurance agent, that doing so will give me more bang for my buck, so to speak. Although I wouldn’t have bothered with the exam if I were purchasing a smaller amount of coverage, think less than half a million. The prices for coverage (under that amount) are pretty similar, and at that level, an exam just slows the process down. I hope this article has helped show you the importance of securing life insurance for your family and what to look out for, God forbid, if you passed away earlier than expected. Thank you for reading!
David Duford ownsBuy Life Insurance For Burial, a virtual insurance agency helping seniors source quality final expense life insurance coverage. He is the author of 3 best-selling insurance sales and marketing books, including “The Official Guide To Selling Insurance For New Agents, “The Official Guide To Selling Final Expense Insurance,” and “Interviews With Top Producing Insurance Agents.” David is also a YouTube Influencer in insurance sales with more than 17,000 subscribers and more than 1.7 million total views.
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