There’s an old adage: “The only things certain in life are death and taxes.” With a substantial part of our population not paying taxes, we can pretty much throw out half of this quote.
However, the other half of the adage, “death,” is something that every one of us will experience. When someone one passes away, you often hear the loved ones saying, “It was a blessing” or “It was his/her time.” Unfortunately, many other deaths are sudden and untimely.
In today’s world where drivers are frequently distracted (talking or texting on a cell phone, for instance), life could be gone in an instant. How many times have you read in your local paper, “Driver veers off the road, overcorrects, and overturns their vehicle?” Two drivers recently slammed into the backs of semis. (It would be hard to miss a semi-truck unless you didn’t have your eyes on the road). Each one of us has experienced this kind of tragedy or near- tragedy, or knows someone who has. And this is only one of many threats to our lives.
So the question becomes, if death is inevitable, and we don’t know when, why aren’t our families being protected? Why are so many people passing away and leaving their loved ones with substantial financial issues? If assets have been accumulated, over time, this would be one way to make sure your family is taken care of. But what if those assets have not been accumulated?
This problem can be solved in several different ways. What is available to create substantial assets at exactly the time they’re needed? (At your death) We can win the lottery, expect a large inheritance, or use a simple strategy called life insurance. Two of these choices are not likely to happen. But the choice of implementing protection with a life insurance policy is a choice each one of us has an opportunity to make. Most people never think that any kind of tragedy can happen to them, it’s always going to happen to someone else. The simple truth is that it can happen to anyone; it’s not always going to be the other guy.
There continues to be an ongoing debate on which kind of life insurance is better—term or permanent insurance. If term is implemented, it is normally cheaper than permanent insurance, in the beginning, and the idea is to invest the difference of term and a permanent contract, so that when the term of the policy runs out (e.g. 10, 20, or 30 years), your investments take the place of owning life insurance. (This does not address any of the tax issues that should be a very important part of each individual’s decision). It is very important that a discipline be put in place to invest the difference and keep it invested, if you choose this philosophy. Because if you “buy term and spend the rest”, not only will the life insurance term run out, but there may be no assets (e.g. IRA’s 401(k), mutual funds) to take care of your loved ones.
Permanent insurance has a level premium throughout your life and normally has some sort of cash accumulation within the contract. This can allow premiums to cease at some point or it can purchase additional life insurance coverage within the same contract. So an analogy to the different life policies would be the difference between renting and buying your home—one does not build equity and the other one does. To avoid the big debate between the two, it is safe to say, the best kind of life insurance to own is the kind that is in place when you die.
Although accidents are going to happen, other ways to avoid a premature death would be to simply take better care of ourselves. With the implementation of the Affordable Care Act, we all will be forced to work on being healthier just for economical purposes, if for no other reason.
Many times people wait until they experience a death of a close family member or friend, before they decide it could happen to them. For the sake of your own loved ones, it would be good to realize death not only could, but will happen to all of us. How much are you worth to your loved ones, should you leave this world tomorrow?
Tim Schumacher represents Strategic Financial Partners in Hays. [email protected]