by Bob Anderson, CLU, LUTCF Agent for Western Fraternal Life
A well-rounded financial plan typically consists of several components, such as mutual funds, annuities, stocks, bonds, bank accounts, and of course, life insurance.
Where to start? Life insurance is the logical answer.
Why? The life insurance benefit is immediately available and is income-tax free. The other components, such as mutual funds, take time – frequently many years to have real value.
What kind? There are basically two types of life insurance: permanent (whole life, universal life, etc.) and term. People will often start with mostly, if not all, term insurance. It is the lowest cost initially. The key is to take care of the need as much as possible.
As an individual becomes better able to afford a larger premium outlay, they should start purchasing some permanent insurance, which has a cash value and is the best value for the long term. Many life insurance portfolios contain both permanent and term.
How much do we need?
I. Income Replacement $300,000
Usually 5-8 times annual income. If there is a dual income, the amount can be adjusted.
II. Home Mortgage $125,000
Amount to pay off mortgage. If they are not a home owner, build in 5 years of rent.
III. College Education Funds $ 75,000
4-5 years of college expenses per child.
IV. Miscellaneous Debt $25,000
Such as auto loan, college loan, etc.
Total Need $525,000
V. Less existing life insurance
and liquid assets (cash, etc.) -$110,000
Amount of life insurance needed $415,000
There is no convenient time to start or update your life insurance plan. Taking a little time to meet with your financial advisor could be time well spent.
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Call 877-935-2467 to speak with a Western Fraternal Life Representative.