Key Takeaways
- If you have loved ones who depend on your income, you’ll want to ensure they’re taken care of if something were to happen to you.
- There are two types of life insurance: term and cash value.
- If you’re young and in good health, life insurance may be less expensive than you expect.
In the military, there is a type of insurance called SGLI (Servicemembers’ Group Life Insurance). Service members who meet the criteria can get up to $400,000 in life insurance coverage for themselves, at a cost of $300 per year. This may sound like a lot of money, but in reality, it’s not. (Now, SGLI is just one type of life insurance, so regardless of whether you’re a service member, it’s important to understand why that $400,000 amount likely falls short.)
If you consider what it costs to replace the income of someone who dies at a young age, it would be in the range of 15 to 20 times their annual salary. So, if that salary is $60,000 per year, when you do the math, you’ll find that it would take about a million dollars of insurance to replace that income.
We’ve all heard heartbreaking stories of young people who’ve died and left behind a spouse and children, but had no life insurance. Life insurance is important. It’s important for your loved ones, and it’s not that expensive.
There are two kinds of life insurance. The less expensive option is term insurance, which is the type of insurance SGLI is. Term means you pay a premium every year, and then if something were to happen, it pays a death benefit to your beneficiaries. If you stop paying the premium, the coverage stops, and there’s nothing that comes back to you. It’s very much like auto insurance in this respect.
The other type is cash value life insurance and it’s more expensive. You might be wondering why you’d want to pay more for life insurance. The idea behind this is that it’s an asset that grows inside an insurance policy over time, so it’s something to have for retirement. It grows tax deferred, and, under certain circumstances, you can take it out tax free. That’s a nice double benefit.
But if you’re looking for basic coverage, a million dollars in term insurance at the 30-year level, for example, might cost around $500 – $800 per year, if you’re in your late 20s or early 30s and in good health. Your premiums stay at the same level throughout those 30 years.
So, look into life insurance if you don’t already have the coverage you need. Find what makes sense for you, whether that’s term or cash value. You’ll have the peace of mind that your family is taken care of if something were to happen to you, and they won’t be left behind trying to figure out how to make ends meet. That’s the primary reason for life insurance – taking care of those loved ones. Until next time, enjoy.
Gary
If you’d like to read more on this topic, here are a few of Gary’s previous posts that you might enjoy: