Every new year I talk to a handful of customers and friends who say that on top of their New Year’s Resolutions list is buying life insurance and establishing a will or trust. Our family put a trust in place a few years ago, and it was surprisingly easy and a huge relief when it was done. A good attorney can set up the trust for you, but we can help you with the life insurance policies.
How much do I need?
There are three primary methods of determining need: Multiple of Income (8-10x annual income); Needs Analysis – we can provide a form for you to complete that helps you “line item” your assets and liabilities to discover what the needs is; and the last, most commonly used method – wild guess. While we do not recommend the “wild guess” method, any wild guess is better than no life insurance.
What kind of policy?
Most people can and should buy Term Life insurance. Term is less expensive which allows you to buy more coverage. A term policy fixes the amount of coverage and the price for a given number of years. A 10-year Term policy will cost less than a 20-year policy because the insurance carrier is locking in coverage for a shorter period of time.
Permanent Life insurance (Whole, Universal and Variable) policies do not have an end-date, like Term policies. They are more expensive than Term, but the difference in cost helps to build “cash value” which you can borrow against or withdraw down the road. The advantage to these policies is that they are in force until you decide to cancel it, with no future applications or health exams.
The Most Important Thing to Know…
… is that you need it, and you can afford it. Don’t get hung up on Term vs. Permanent – all good Term policies can be converted to Permanent policies for many years, and without any health questions. If you have an idea about how much you need, but cannot afford a 20- or 30-year term, then buy the 10-year Term and get the coverage in place. You can always look at it again in a few years, but you will feel better having the coverage in place now.
Purves Insurance is located in Davis, CA, and specializes in un-confusing people about insurance.