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Ask yourself this question..."would your family be able to carry on without any financial difficulties if you were to pass away suddenly and unexpectedly?"

Everyone buys auto insurance. Everyone buys homeowners insurance.They are mandatory to own if you operate vehicles or own a home. But nobody is required to have life insurance. It is viewed as a luxury item by many, but nothing could be further from the truth.

It can be very hard for a family just trying to recover from the loss of a loved on and cover funeral expenses or medical bills. But what happens a few months down the road when the family can't afford the mortgage, food, car payments, and other living expenses. With life insurance, you will have peace of mind that your family will be taken care of financially for a number of years in the event of your death.

THE PRIMARY GOAL OF LIFE INSURANCE IS INCOME REPLACEMENT

We first and foremost consider life insurance as income replacement for your wage earning years. We hold steadfastly true to that purpose. We do not view life insurance as an investment. The are other vehicles out there that are far better investments for your money, such as fixed annuities and mutual funds. 

What is Term Life Insurance? Family sitting on grass

Term life is by far the most popular and least complex form of life insurance. These policies cover you for a selected period of time called a policy term. The terms usually last between 10 and 30 years. How does a 10-year term work? If you die within the 10 years as specified in the policy term, your beneficiaries will receive the death benefit specified in the policy. For example, if John Smith takes out a 20-year term on 11/14/18 with a death benefit of $500,000 and dies before 11/14/38, his beneficiaries will receive $500,000 income tax-free. Yes, I said income tax-free!

If you were to choose a 20-year term, the premium payment amount is fixed on the onset of your policy term and will remain fixed for the entire life of the 20 years. After the 20-year term expires, the coverage and the fixed premium ends. If you die after the 20-year term expired, the life insurance company pays nothing to your beneficiaries. 

However, many policies are considered annually renewable. So if you continue to pay, the premium increases every year as you age and  ultimately becomes unaffordable. The main point is to never keep an expired term policy. Take out a new policy.

Types of Term Life Insurance

Level Term

This policy provides the same amount of coverage over a specified period of time, usually between 10 and 30 years. The premium is fixed for the entire policy term. This is very popular among younger clients from ages 30 to 50, who mostly take out 20-30 year term policies. 

Convertible Term

Most term life insurance policies have this convertibility option built into them already. You can convert any amount up to your current death benefit to permanent lifelong protection. For example, if you took out a 20-year term with a $500,00 death benefit, you have 20 years to convert any amount up to $500,000 to permanent insurance. If after 10 years into a policy, you want to convert $100,000 of it to permanent, you can leave $400,000 as term for the remainder of the policy term of 10 years and $100,000 will be now be permanent insurance. Note that the rate you will pay for the permanent insurance is your current age at time of conversion. 

The very attractive feature of conversion is that you will not need to undergo a new medical exam. If you suddenly become uninsurable 10 years into your policy, yo will want to exercise this feature.

TERM LIFE IS VERY AFFORDABLE!

In addition to the simplicity of term life, it is also very affordable for many people. It is the most cost-effective way to get life insurance. The reason why it is so inexpensive is that the insurance company is placing all of the risk onto you. As long as you pay the premium, they are obligated to pay your beneficiaries the death benefit if you die within the policy term. The death benefit is guaranteed during the entire policy term. There is no cash value account with term life, as compared to whole life and universal life, which will be discussed in another blog.

How much does it cost? It depends on many factors. Factors include: age; smoking status; height; weight; taking any medications; any serious ailments; family health history; and so on. A lot is taken into consideration when an insurance company gives you a rating.

If you don't smoke and are in good health, a 20-year term with a death benefit of $500,000 is affordable for around $30-$60 a month. If you smoke or have any significant health issues (asthma, cancer, diabetes, heart disease), the pricing is much higher or you might be declined.

Let me give you one example of a current client: At age 52, she applied for a 30-year term with a death benefit of $275,000. Many life insurance companies will not offer 30-year term to anybody over age 50, but there are few out there such as AIG who do offer. She has significant asthma problems and takes medication for it. She sees her doctor frequently and has documentation that she is trying to control it. After shopping around and being declined from five insurance companies, she was offered a standard rating from AIG and could purchase the policy for $130/month. It was her last chance of purchasing life insurance. It was a success to her.

Do I need term life insurance?

Yes! Anybody with a mortgage, children, and significant debt should consider purchasing life insurance. If you are the sole wage earner in the family, life insurance is vital to making sure your family is financially secure in the years after your unexpected passing. Buy term life when you are young and healthy. The pricing is much less than when you are older and potentially in bad health. Remember that life insurance is about them, not you.

We recommend you purchase a term life insurance policy for 10-12 times your annual income. That way, your income will be replaced if something happens to you. This is the cheapest way to protect your family long-term.

Pepe Insurance Agency is here to help you with your life insurance needs. Each client is unique and will treat each case with great care.

Fill out a term life insurance quote form or contact Bill Pepe at (845) 724-3031 x13 or email bill@pepeinsurance.com.

Written by Bill Pepe

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