This is the ninth post in the Money Girl’s Beginners Guide to Becoming Rich. To read all posts in order, start with Change your Money Mindset then continue reading the rest of the series on this page.
You’ve worked hard to financially support yourself and your family, so you want to be sure that everything is protected. Accidents and disasters can and do happen, and if you aren’t adequately insured, it could leave you in financial ruin. You need insurance to protect your life, your ability to earn income, and your loved ones. On today’s post, I’ll show you how to make sure you’re properly insured.
One of the most important types of insurance you can purchase is Life Insurance. At age 23, I bought my first life insurance policy. I didn’t think I needed life insurance because I was so young and didn’t have children. It was until I did some research, I found out it was for me. And here’s what I learned.
Insurance is NOT an investment!
Insurance is a Protection!
What is Life Insurance?
Life insurance is an agreement between you and an insurance company to pay money (usually monthly) in exchange for receiving a death benefit if you die or after a set period.
What is the Purpose of Life Insurance?
The purpose of life insurance is to protect your dependents against the loss of income if you die. It’s to protect anyone who would suffer financially from your death. In the event of a tragedy, life insurance proceeds can:
- Pay for funeral costs
- Help pay the bills and meet ongoing living expenses
- Pay off outstanding debt, including credit cards and the mortgage
- Continue a family business
- Finance future needs like your children’s education
- Protect your spouse’s retirement plans
Do you Need Life insurance?
If someone will suffer financially when you die, chances are you need life insurance because it provides cash to your family after your death. This cash, known as the death benefit, replaces your income and can help your family meet many important financial needs like funeral costs, daily living expenses, and estate taxes.
Who Needs Life Insurance?
You need life insurance if your in any one of these situations:
- You’re Married
- You’re Married with Kids
- You’re a Single Parent
- You’re a Stay-At-Home Parent
- You’re Retired
- You’re a Small Business Owner
- You’re Single
To help you understand how life insurance might apply to your particular situation, I’ve outlined a number of different scenarios on my next post: Who Needs Life Insurance?
If You Need Life Insurance, What Type Should You Get?
There are typically two basic types of life insurance: Term Insurance and Whole Life Insurance. Each type has its own pros and cons.
Term Life Insurance is the cheapest life insurance you can buy. A term policy is one that pays the face amount only in the event of death within a limited number of years – in 5, 10, 15, 20, 25 and 30-year periods. Simply put, your insurance coverage is temporary. This type of insurance is recommended for those who want to maximize insurance protection while minimizing costs. However, as the insured gets older, either the face amount (or coverage) decreases or the premium increases. Term insurance provides death benefit protection only, has no cash value and not much versatility.
Whole Life Insurance, on the other hand, has higher premiums because you’re buying an insurance that offers lifelong coverage. Simply put, your insurance coverage is permanent (or does not expire) as long as you pay your premiums. Permanent life insurance is usually a combination of death benefits with a savings component. The savings portion can build a cash value—against which the policy owner can make withdrawals or borrow against it.
How Much Life Insurance Do You Need?
When purchasing life insurance, the question really isn’t how much you need, but how much your family will need at the time of your death to meet immediate obligations (medical bills, funeral costs, estate taxes, unpaid debts) and to sustain your dependent’s financial needs in the long run.
Related Post: How Much Life Insurance Do You Need?
Where Can You Buy Life Insurance?
Most people buy life insurance through agents or other financial advisors of life insurance companies. Get referrals, or at least choose from the Top 10 Life Insurance Companies in the Philippines. But, more importantly, choose an insurance agent that you are comfortable with since they will be the one to help you should you have any inquiries, assist you with claims, etc. Agent-client relationship is a life long commitment since what you want to have is a life insurance plan. Find one who really cares.
Related Post: Top 10 Life Insurance Companies in the Philippines
Obtaining life insurance through your employer is another option. Many employers provide, at their own expense, a basic life insurance benefit, often equal to one to two times your base salary.
Well, do you fully understand why having insurance is needed and how much coverage you need based on you personal needs? What are your insurance issues? Don’t be shy, share with me in the comments below.