Life Insurance 101

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I’m back after a fantastic spring break vacation with my guy. We did plenty of awesome and relaxing activities, but one of the many financial activities we did over our break was buy some extra life insurance. You’re probably thinking, “But Christine, you’re in your 20’s. Do you really need life insurance?” To which I would respond with a resounding, unflinching, “ YES!!”

There are two types of life insurance; term life insurance and permanent life insurance. Both types of life insurance pay out their death benefit if the policy holder passes away.  However, there are some major differences between term and permanent life insurance, three of which I plan to talk about below.  

The first major difference between the two is that term life insurance has an expiration date and permanent life insurance doesn’t. So at 30 years old you could buy a term life insurance plan that lasts ten years. It would expire when you turn 40. However, if you purchase a permanent life insurance plan at 30, it never expires.

Another major difference between term and permanent life insurance is that term life insurance doesn’t build cash value, while permanent life insurance does. With term life insurance, you pay for it, and it covers you for a specific amount of time, somewhat like care insurance or home insurance. With permanent life insurance, you pay for a specific number of years, lets say ten years again, but at the end of the ten years, when you stop paying, the policy doesn’t expire. As the years pass the policy builds cash value and you can withdraw from the policy for things like retirement income or for unexpected expenses. When you take money out from the policy, the amount you borrow gets deducted from what your death benefit would be.

A third major difference is that term life insurance tends to be significantly cheaper than permanent life insurance, especially for young people. Because of the fact that you build value over time with permanent life insurance, it is more expensive.

Depending on your situation, you may want to consider term, life, or both types of insurance. For example, if you are in your 20’s with no dependents (kids), no mortgage, and no health problems, you probably want to get permanent life insurance. It will be cheap because you are young, and the risk of you dying in the near future is pretty small. It will take you a few years to pay off, and then you will be insured for the rest of your life. Plus, it will give you an option for supplemental retirement income in the future.

If you have kids, you probably want to get some term life insurance. It’s cheaper than permanent insurance, so it will be better for your diaper and baby food filled budget. Regardless of whether you are a working parent or a stay at home parent, I recommend getting a term policy. If you’re the breadwinner, you want enough money that if you aren’t around to provide for the family, you know the family will still be able to live.  If you’re a stay at home parent, you should consider getting a policy that is enough to cover the cost of a caretaker for the remainder of your dependents’ childhood years. Remember, if you aren’t around while your significant other is out bringing home the bacon all day, your child(ren) will need care, and care is expensive.

Personally, I’ve chosen to take a balanced approach to life insurance, meaning some term and some permanent insurance. I have enough term life insurance to cover my major financial obligation, my mortgage. This way, if anything were to ever happen to me, I know that D, my fiancé, could stay in our home comfortably. Luckily, I don’t have any other debt, but if I did, I’d want enough to cover any other major debt I had. I also have some permanent life insurance. It’s more costly, but I’m using it as a financial vehicle for my retirement planning. Specifically, I plan to use it to supplement my income upon retirement. Or, in the event of my untimely passing, it would cover my funeral costs and give my family a couple thousand extra dollars for any unexpected expenses associated with my death.

The bottom line here is that you may not realize it, but you need life insurance. Whether you are single or taken, have kids or not, it’s a smart move to ensure your future financial stability and the financial stability of the people you love just in case you aren’t around anymore.  

The Cost of Getting Sick

Courtesy of www.spaweekblog.com

How I Feel This Week – Image Courtesy of http://www.spaweekblog.com

Hello readers! I know I’ve been out of touch for the past couple of days. I’ve been home sick in bed, which has resulted in numerous naps, excessive consumption of chicken soup, a trip to the doctor, three antibiotics, and a bottle of Advil. I’m thrilled that I’ve finally mustered up the energy to compose a post, and the events of the last few days have gotten me to start thinking about the cost of getting sick.

This week, as a result of my respiratory infection I’ve incurred the following expenses:

  • Visit to the Doctor, including Strep Throat Test: $15 co-pay
  • Copious amounts of fresh chicken soup: $15
  • 3 Types of antibiotics – $5 each for a total of $15
  • 1 bottle of Advil to reduce fever, shakes and sweats: $10

That comes to a grand total of $55. Certainly not too bad when you add up the amount of services and products I’ve received. I’m lucky to get sick time through my job and have a good medical plan, which really reduced my costs significantly. However, what about those of us who are uninsured, unsalaried or both? In the interest of fairness, I want to show you how much the same exact experience would have cost me if I didn’t have sick time and insurance:

  • Visit to the Doctor, including Strep Throat Test: $220
  • Copious amounts of fresh chicken soup: $15
  • 3 Types of antibiotics: $210 (estimated $70 per antibiotic, which is on the cheap side)
  • 1 bottle of Advil to reduce fever, shakes and sweats: $10
  • 3 days of lost wages @ about $300 per day of work (pre-tax): $900

Grand total of…(digital drum roll)… $1355! That is nearly 25 times the cost of getting sick while having benefits. In my opinion, the discrepancy is ridiculous! However, it reminds me of how incredibly lucky I am to have sick time and health insurance. If you aren’t as fortunate, it’s especially important for you to think about putting some money aside in an emergency fund to cover these types of expenses in the event of an unexpected illness or other emergency.

Well, it’s time for another nap, so back to bed I go. Stay healthy my friends!