Most of us think of life insurance as something that pays a death benefit to someone else when we die. It doesn’t sound particularly exciting but it can be much more than that. Our financial resource Carl Carlson, CEO of Carlson Financial, is here to talk about the five key questions to ask ourselves about life insurance and how it may be way more than just a death benefit.
Carlson said the five key questions are: Do I need it? Do I want it? How much? What type? And what additional benefits?
"Do I need it?" is when you have to ask the question, "If I passed away now for all those people that might count on me, which could be children, young children, or perhaps a spouse?"
For example, someone in their late 20s maybe about 30 years old, with children and a spouse and haven't saved much yet are going to need it.
Carlson said, someone that's retired or real close to retirement and already has a bunch of investments saved up most likely don't need it so then it becomes a question of well do I want it.
Is there a reason have life insurance if you don't need it? Carlson said that's where you have to look at other areas of your plan, because if it's permanent life insurance, it can actually be used as a retirement plan, where it can pay you so much money every year for the rest of your life at a certain age.
Carlson added it can help your income, it can help your income taxes, because those payments are going to be tax free if they're structured right. It can also help your inheritance plan so maybe you want to leave more money to your children than just what you have an investment so.
Next is, how much do we need and what type?
Carlson said, how much is another question, and just a quick example that 30-year-old person I was talking about if they have children, young children and a spouse.
“Let's just say they're making 100,000 a year now they're probably going to need 10 times, so that's a good number to look at maybe 10 times or salary. So, someone making 100,000 perhaps should have a million in life insurance now at that age of may not be easy to afford so term insurance would be the type. And someone real healthy could get a million dollars in term insurance at that age of 30 maybe for $30 a month. So it's also not real expensive, so you need to say wow for $30 a month I need to make sure my family has something if something happens to me so. Otherwise, if the amount is kind of hard to predict because maybe you have some savings now you're 50 and you have a pension, that might start if you pass so then it all comes down to your financial plan and that's where you got to really run a lot of numbers to figure out exactly how much do I need?”
Now, for what type of life insurance you need or want: Term insurance lasts for a term and then it stops in about 10 years to 20 years.
Permanent insurance means it is permanent. It's going to eventually pay no matter if I die at 90 or 100 or 110 so the type is important and the how much or the amount is important.
There are also some additional benefits in some policies. Carlson said, “You can add what's called a writer who so good example is disability writer that can be attached to a life insurance policy. And that disability writer says, you know what if I become disabled and now I can't work for the rest of my life. Then, or even for a period of time then they're going to pay that premium for you, for the rest of your life. And if you have that disability also if it was a term insurance product they will go ahead and convert it to a permanent life insurance product. So that's $30 a month premium for a million for a term policy, maybe. $1,000 a month for a permanent policy and they'll convert it and the life insurance company will pay it for the rest of your life. So that helps your retirement plan and then there's long term care writers, where, if you go into or need long term care.”
Carlson added that they will let you use the death benefit over a certain period of years to pay for your long term care expenses, but if you don't need it, you still have the death benefit that kicks in.