Consider your earning potential. You’d be amazed at how much you make over the course of a lifetime. Go ahead and do the math. Of course, the figures will be different for everybody, but it’s fairly simple to calculate. How much money do you make? How many years will you be working?

When you multiply the two together, you get an idea of how much lost earnings your family will suffer if you were to pass away. Of course, this doesn’t even take into account retirement or social security, but that’s OK. Usually this number alone exceeds most people’s term life insurance coverage.

Now, consider what you’re worth to your family emotionally. If you were to die today, would your spouse want to return to work tomorrow? If so, you probably need a marriage counselor, which is unfortunately much more expensive than term life insurance. How much time would you want to give each other “off” if something were to happen to you? Unfortunately, bills will still need to be paid. Insurance benefits can go a long way towards covering these, if you have enough.

Do you want your kids to go to college? Most of us take out loans to cover our kids’ education, but the sad fact is that even the most generous banks (I know, oxymoron, right?) don’t loan money to dead people. This leaves the entire burden on your spouse or your kids. No one wants that. Factor in what your kids’ education is going to cost. Make sure you have enough coverage to pay for it.

Even if you’re a home maker, you have economic value to your family. Who would stay with the kids if you were gone? Child care costs money, and that should be considered when looking at how much insurance you need.

These are just the simple things that every family needs to concern itself with. The truth is that every family’s situation is unique, and you should discuss your individual needs with a qualified and trusted agent who can help you determine how much coverage is appropriate for you.

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But imagine for a minute you have an accidental death and dismemberment  policy. You know, the kind which also pays out if you lose a finger, a foot or an eye (they always make it sound like that makes the policy much more valuable). When your family goes to collect their check, your agent stares blankly at them and asks, “Was the cause of death accidental?”

We know what you’re thinking. What other cause of death is there? It’s not like you contracted cancer on purpose. Of course it was an accident. Very few people die on purpose. But, in insurance terms, your death probably won’t be accidental.

Accidental death and dismemberment insurance policies offer huge death benefits for very low premium costs. So low it seems ridiculous not to buy it. But beware, the reason the insurance is so cheap is that “accident” is defined narrowly enough that the policies seldom have to pay.

Term life insurance is also fairly inexpensive. Sure, it costs more than accidental death. But that’s because it will actually pay out if you die, even if you weren’t hit by a car.

Even if you do die from an accident, you’d better do it quickly if you want your loved ones to cash in on your accidental death and dismemberment policy. Policies vary, but generally speaking the death has to be within a few months of the accident. So, don’t linger too long on life support before cashing in or your family won’t get to. Cash in, that is.

Bottom line is this. If you really think you’re likely to die an “accidental” death, fine. Take out accidental death insurance. But, know what you have. And don’t let AD&D insurance be the only kind of life coverage that you have. Take out a real life insurance policy as well, so your family won’t be faced with the prospect of finding out that your insurance coverage doesn’t cover the kind of death you suffered.

We know you’ll think you died on accident. We’re sure your family will make that case. We’re just not so sure the underwriting insurance company will define accident quite like you do.

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Either way, if you’re just looking into life insurance for the first time, you’re doubtless getting a lot of advice, and much of it might even be conflicting. If your life insurance agent is anything like most, he’ll probably tell you that you should buy lots of permanent life insurance.

After all, it’s permanent. Since we all know we’re going to die someday, that way we can make sure our money isn’t thrown away. It will pay out. Plus it builds cash value which you can take out loans against. Or, if you prefer, you can give up your insurance any time after the first two years and walk away with the cash value of the policy.

But here’s what he won’t tell you. That attractive interest rate the savings vehicle of your whole or universal life insurance policy dangles in front of you only applies to a very small portion of the premium that you pay. For the first two years, it doesn’t apply to any of it. Why? Because for the first two years, you’re paying more commission than anything else. Don’t believe me?

In most cases, insurance agents who sell permanent life insurance collect a commission of 90%-95% of your first year’s premium. While term life insurance also offers a substantial commission (averaging about 40% of the first year’s premium), the commissions are much higher for whole or universal life insurance policies.

When you add together the fact that an agent makes a higher percentage on permanent insurance and the fact that permanent insurance is more expensive, you get an equation where it is to the insurance agent’s advantage to sell you permanent insurance. So, naturally, most insurance agents will try to sell you on the benefits of such policies. After all, they’ll be collecting a higher percentage of more of your money.

Most financial experts recommend buying term if you need life insurance. With a little research, you’re sure to agree. But don’t tell your insurance agent we told you so.

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You see, the whole idea behind term life insurance is that the insurance company is betting that you are not going to die within the term, allowing them to keep all of the premiums you have paid, without having to pay anything out. Usually it’s a reasonably safe bet.

After all, most people who buy insurance frankly hope that they lose the “bet.” Most of us would much rather lose out on our insurance premiums than die. We buy the insurance hoping that we live much too long for anyone to ever collect it, but still hedging our bets so that we can provide for our families if we do die within the term, which most of us set to be roughly equal to the years we expect to be working and raising kids.

Of course, if we have medical conditions that could be considered life threatening or life shortening, the insurance company runs a greater risk that we will die within the term. Since the premiums paid for a term life insurance policy are normally very small compared to the death benefit the company has to pay if you die within the term, insurance companies get very nervous about insuring people with some medical conditions.

In some cases, you can still buy life insurance with health problems, but because the insurance company is taking more risk, they’re going to charge you more. Unfortunately, with some kinds of pre existing conditions, you may not be able to buy life insurance at all.

You may be asking, what does this have to do with me? I’m in good health. Well, congratulations on your health, but the whole point is that you need to go ahead and buy your life insurance while you’re healthy, because you never know when a routine physical could turn into a diagnosis that would stop you from being able to get any life insurance.

The good news with life insurance is that, as long as you didn’t lie when you were applying, the insurance company can’t cancel your policy because of a medical condition you or your doctor discover later.

Photo via conorwithonen

Of course, there are some term life insurance policies whose premiums go up every year as you get older. But most people don’t purchase these kinds of policies. And frankly, most people shouldn’t. For most people, a twenty or thirty year level term insurance policy makes more sense than anything else.

With level term insurance, you determine (with your agent’s help) how much coverage you need to cover the financial loss to your family if you should die during the term. The premium is set according to whether or not you use tobacco products, whether you have a dangerous career or hobbies, your health and, most importantly, your age.  In most cases, your age is the largest determining factor is the cost of your life insurance.

Statistically, most people become parents at an average age of 25 – which is smack dab in the middle of our invulnerable stage. While it’s true that most of us will make it through our 20s in good shape, with plenty of vigor left for that mid life crisis in the late 30s and early 40s, the fact is that some us won’t. People do die in their 20s, both by accidents, disease, and every other conceivable form of death, up to and including the infamous “cause unknown.” And while we are young, our children generally are, too. In a nutshell, our families stand the risk of losing our incomes when they will need it the most, for raising and providing for children.

The truth of the matter is that you need life insurance more when you are young than you will while you are old. While it’s true, most of us won’t die until we’re well into our 70s, by then there shouldn’t be anybody depending on us and our large bills (i.e., a mortgage) should be paid off, so we really won’t need life insurance, except maybe enough to help defray the cost of burying us. Unless of course, those adorable toddlers we’re raising now are still living at home in their mid 40s.

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Here are some of the activities that will bump up your premiums:

• Skydiving is an activity that’s likely to get you charged more. There’s an old Army ditty that says, “if my chute don’t open wide, I’ve got another one by my side. If that one should fail me, too, look out below, I’m coming through.” Nothing says good bye quite like splattering yourself over the countryside from a mile in the air.

• Your term life insurance could cost you more if you’re into SCUBA diving, too. Something about hanging out under water with critters that can eat you is our best guess as to why. Of course, if some poor sap is being chewed on by a hammerhead shark, he probably isn’t too worried about his insurance at the moment anyway.

• Believe it or not, holding a private pilot’s license can cost you more on your insurance. Ironically, it doesn’t even matter if you use it. The fact that you could means you get to pay a little more.

Of course, some insurance companies have more extensive lists of risky activities for which they’re inclined to add a nickel here and a dime there to your premiums. It all depends on what company you deal with, so shop around a little.

There is one risky behavior, though, that virtually all life insurance companies charge more for. If you smoke or use tobacco products, you will pay more for your term life insurance. Of course, smokers don’t usually die the kinds of dramatic deaths that SCUBA divers or skydivers have the potential for, but they do tend to die about ten years earlier than non-smokers, and often of things like lung cancer which can be rather gruesome in their own right.

We wouldn’t presume to tell you whether or not to smoke, but we will give you this tip. If you do smoke, and quit, make sure you let your insurance agent know. Your rates just may go down.

Photo via divemasterking2000

Retirement Benefits

Of course, you should take full advantage of any retirement or investment packages your employer offers. While the market has some people skittish these days, this is actually the best time to be investing. Don’t throw caution to the wind, but do invest with a long term strategy. And anytime your employer is willing to match funds, max out.

The Safety of Annuities

With that said, however, more and more people are discovering annuities as a safe and profitable retirement vehicle. They don’t provide the sexy rates of return you see on stocks and some mutual funds, but they do guarantee a reasonably good rate of return. And generally, they allow for you to prosper more when the market is good. Annuities, like some other investments, pay out incrementally to you when you retire (or whenever you decide, really), and guarantee you an income for life.

Basically, it comes down to this: slow and steady wins the race. There are relatively few costs taken out of your investment dollars for annuities (one of the reasons some agents and brokers don’t want to sell them to you), so most of your money is put directly into the annuity. Studies of the market generally show that a constant rate of return will do better by you just about every time, when compared to the fluctuations of the open stock market.

Whole Life, Term Life and Annuities

If you currently have permanent life insurance, one way you can prepare for retirement is to cash out your permanent policy and buy a much larger term life insurance policy, using the difference in premium price to fund an annuity. The cash value will accrue much faster, giving you a better nest egg for retirement.

This should go without saying, but just in case, here goes: before you cash out any life insurance policy, make SURE that you are going to be able to qualify for new life insurance. Permanent insurance is grossly overpriced, but if you have a health problem that would preclude you from getting term or other life insurance, stick with what you have and keep paying the premiums. It’s better than nothing.

Regardless of what you do with your insurance or investments, consider adding an annuity with a guaranteed rate of return to your portfolio. In the end, regardless of what the market does, you’ll be glad you did.

Photo via Adam Pniak

So, what’s out there after we bite the big one? Well since nobody still walking the planet has been there and back, it’s difficult to say and impossible to prove. You may have your beliefs. We all do. But proving them is another matter entirely. Here are some of the world’s more common beliefs about what comes after death:

• Heaven or Hell. Interestingly, a basic belief in one or both of these is common amongst several of the major religions. Christianity certainly believes in both, though different factors have differing views on how you end up in either place. Islam also has a version of both. Whether or not Judaism believes in Heaven and/or Hell largely depends on who you ask.

• Reincarnation. Some people, notably Hindus, Buddhists, Spiritists, some Wiccans, and Rosicrucians believe that you come back to this earth as a different being. Like Heaven and Hell, there are differing variations on the theme, but the basic idea is that if you’ve been more or less good, you come back as something better and if you’ve been more or less bad, you come back as something worse. Be careful, because apparently karma can be a bitch. And you wouldn’t want to spend the next time around as a platypus.

• Ancient Egyptians believed that being mummified was the only way to even have an afterlife. If they’re right, it’s the ultimate case of the rich get richer as their pharaohs were buried with butt loads of treasure and most of the subjects weren’t even mummified. In any movie we’ve seen, though, the mummies are all pissed. Maybe the afterlife isn’t so great after all?

• Some believe life just ceases when you die. While not entirely tasty to swallow, there’s a certain logic to it, at least if you’re an atheist or agnostic. Which most of the people who believe this are.

Of course, we have no way of proving one way or the other what lies on the other side. What we can prove is that if you were to die in an untimely manner (and when is it ever really timely?) your family would benefit from term life insurance. So, wherever you’re going when you’re done here, make sure you take care of those left behind before you go.

Photo via Theodore Scott

Make no mistake; we hope you live a long and healthy life. If you buy term life insurance, the best case scenario is that the policy expires long before anyone can collect on it. Assuming your relatives like you, everyone can agree on that. But, if you do die before you’re ready to (and, let’s face it, who doesn’t?), having life insurance can help your family recover not only from your final expenses, but also from the loss of income that not having you around will incur.

Term insurance is by far the least expensive way to insure your family, with the exception of accidental death insurance. And accidental death insurance only pays out if you die in an accident. While it’s easy to reason that just about everyone dies on accident, the kinds of death this policy will pay for are extremely limited, making it a waste of money in most cases.

You could also opt for whole life insurance if you want to. On a positive note, it will definitely pay off when you die, regardless of age (well, technically, they generally just give you the check if you make it to 95 or 100 years old). Because the insurance companies know for sure they will be paying up, though, the death benefits are very small compared to a term policy of the same price. So, for most people, it isn’t practical to cover much more than final expenses with a whole life insurance policy.

Which leaves you with term. The premiums are smaller and the payout is bigger. Of course, if you outlive the policy, the insurance company gets to take all their marbles and go home, but at least you had the security of knowing that if something did happen to you, your family would have been taken care of financially.

Photo via Qole Pejorian

Obviously (or hopefully, at least), you’re not worth more dead than alive in an esoteric sense. Chances are, if you were to die, your family won’t miss you any less for having a large check delivered to them. While the money is very useful for taking care of final expenses, paying off bills, and recouping some of the income they would lose if you were to cash out before your time, no one can replace you. Life insurance doesn’t even try to do that.

What life insurance does, ideally, is make up for the financial losses your family would suffer if you were today. And those losses can be substantial. Before you claim that you’re worth more dead, you might just want to have an idea of what you’re actually worth alive.

• First of all, consider the costs your family doesn’t incur while you’re still living. Between $5,000 and $10,000 will be spent just taking care of funeral costs. Cremation saves a little, but is still generally thousands of dollars. So, living, at the very least, you are saving on funeral expenses.

• Income. Maybe you only make $19,000 per year. Maybe even less. But when you add that up over the course of 40 to 50 working years, it adds up to a small fortune. If you were to pass away unexpectedly, your family would be out your income, times the number of working years you have left.

• Services. Most people never stop to think how much they actually do for a household. Maybe you’re a Mr. Fix-It (or Ms. Fix-It, in these equal opportunity times). Or maybe you clean the house, mow the lawn, or whatever. All of these are things that will either have to be done by someone else in the household or hired out. Unless there truly is someone else in your family who truly do everything you do, some of it will need to be hired out, which costs money. Money which you are worth alive.

Hopefully you’re getting the picture that you’re very valuable, not only relationally, but financially. When buying term life insurance, consider carefully just how much your family would be out if something were to happen to you.

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