Mortals Only

For those of you who aren’t invincible, today’s post will show you one vital practice for demonstrating your love to your family.  It is important that we express our love and affection verbally, but oftentimes it is our actions that truly show our hearts.

First some bad news:  you’re going to die.  You knew that, right?  Now, I can’t tell you when it will happen, but I will tell you  one thing–that day is one day closer today than it was yesterday!

Of course we all think that our final day is way off in the future, and for many of us, it will be.  The problem is that for some of us, that day will come quite soon, perhaps even before our kids are grown and our retirement portfolio is sufficiently large.  We need some way to guard our loved ones from the compounding diffiulty of a parent’s premature death and an impossible financial situation.

Thankfully, generations ago, our forefathers instituted insurance programs to protect their families as well as future generations like us.  Insurance companies collect premiums from large groups of people, most of whom do not die while the policy is in effect.  But for those few who die in the prime of life, the revenue generated by everyone’s premiums is paid out to the family of the departed.  And thanks to significantly improved technology and business models, today most healthy people can obtain this protection for next to nothing.

Between my wife and I, we have a 20-year term policy for close to $1,000,000 which cost us less than $40 per month.  For less than what many people pay for cable, we are protecting our children and each other in the event that death comes sooner than we expect.  Over the next 20 years, it is vital that we invest aggressively, building our portfolio to a large enough value that insurance is no longer needed.

For those who do not have the discipline to save an invest, insurance companies also offer “whole life” policies.  Unlike term policies, these insurance products do not expire at a set date in the future.  Rather, they are a policy that you plan to pay into for the rest of your life.  In addition to the insurance coverage built into these plans, they also have a savings account inside.  So instead of paying the $40 like in our example, you might pay several hundred per month.  Some of the extra money you pay goes into a savings account that you own, which grows over time.

Many people like the whole life policies because they have a built-in way of forcing you to save money.  However, these products often carry significant fees and underperform compared with a good mutual fund or a 401k.  Therefore, it is our recommendation that you purchase a sizeable (say $500,000 for an average person) term policy on a 20 or 30 year term.  Plan to invest at least 8% of your income into a 401k or Roth IRA during that time, so that at the end of the term you will have become self-insured and will no longer need life insurance.

Taking these few simple steps is the difference between leaving your family vulnerable and destitute or loved and financially secure.  Make the time today to investigate rates at a few different companies before purchasing, and rest confidently knowing that your family is being loved well.

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