Miles to Go Before I Sleep – How Term Life Insurance Protects Your Loved Ones
But I have promises to keep
And miles to go before I sleep.
“Stopping By Woods on a Snowy Evening”
by Robert Frost
You can read a more technical definition of term life insurance in this Investopedia article, but when you buy term life insurance, you are basically betting on your life. It’s a classic gamble: the insurance company who sells you the policy bets that you won’t die; you bet on the possibility that you will. The insurance company collects money from you each month, promising to pay your beneficiary much more than you ever paid in. They win the bet if you outlive the term because they collected your premiums for years without ever having to pay you back. You pay a small amount of money to your insurer in case you die prematurely. If you do, you “win” the bet, although that victory is not much of a win!
Put that way, you might wonder how term life insurance could possibly be a good deal.
For most people in their 20’s through 50’s, life chugs along familiar and routine paths. You grow up, find a partner, get a job, have kids, and live a normal life. The chance that you might die in your 20’s, 30’s, 40’s or 50’s is very small in the United States. That’s a fact, so you don’t need to worry a lot about the possibility of premature death.
However, the chance is not zero. And if you die during any of those decades, the consequences of your death can be devastating to the people who depended on you when you were alive. If you earn wages that contribute to your family income or if you provide unpaid services to your family that would need to be paid for if you died, you should consider buying term life insurance.
Imagine that you and your spouse both work, earning $40K each a year. You’ve got two kids in grade school. If you were to die, half of the income your family relies on disappears permanently. Your spouse and kids could be in a serious financial bind in addition to having to deal with their grief from losing you. Or imagine a similar family situation in which your spouse makes $80K and you stay home with the kids. You might think that your loss wouldn’t matter financially because you aren’t bringing in hard dollars. However, if your family lost you, they’d have to pay for child care, transportation, home cleaning, time management, and other things you do in addition to having lost the family anchor. You might even need life insurance as a single person if you have parents or siblings for whom you provide extensive financial assistance or care-giving help.
Take a minute to think who depends on you and whose life could be negatively affected (beyond the sadness of losing you) because without you they wouldn’t have enough money to live comfortably or to achieve the dreams they shared with you. Term life insurance can’t bring you back and can’t alleviate the emotional devastation of your loss, but it can make life safer and better for the loved ones you’ve had to leave behind.
Unlike other forms of life insurance (whole, universal, variable) that can be prohibitively expensive, term life insurance is cheap, especially for healthy young people in their 20’s and 30’s. You can check out this calculator to get an idea of what you might pay. Details affect rates, but as a ballpark estimate, a 30-year-old, normal-weight, non-smoking male would pay about $35 per month for $1M of term life insurance. That’s one of the most affordable ways to keep your family safe that I can think of.
If you think term life might be right for you, do your research and make sure you choose a reputable insurance agent. Look up the insurance company’s credit rating. Through resources such as Standard & Poor’s, A.M. Best Co., or Moody’s Investors Services, you can see whether the annuity company you are considering has a solid credit rating. An “A+++” or “AAA” rating is a sign of strong financial stability. For more information, check the National Association of Insurance Commissioners (NAIC) Consumer Information Source (CIS). The NAIC provides a database for consumers to research an insurance company’s financial information and complaint data. The information in the CIS is supplied voluntarily by state insurance departments. Not all states provide the data, nor do all companies appear in the directory; however, it’s a good place to start.
As a financial planner, the purchase of term life insurance is a key piece of advice I give to families to maintain financial safety. Your death at any age will bring heartache to your loved ones, but your death in the prime of your life is even more heart wrenching. And the financial difficulties that can hurt your family are also upsetting because they can be prevented in an affordable way. If you are young and people depend on you, take time this month to rese