When To Buy Life Insurance

Life insurance primary purpose is to protect those left behind when a loved one dies, it also plays an important role in tax planning. Remember, all things being equal, the younger you are, the lower the ongoing cost of the premiums. And females pay less, since the mortality tables tell us they live longer.

My friend recently lost her spouse. A basic funeral — pine box, one-day visitation, service and cremation — cost $5,500. Most people need to earn more than $7,000 to generate $5,500. However, life insurance costs only pennies on the dollar, and the death benefit is tax free.

There comes a point in your life, when you might still be your parents’ kid, but you are also an adult. Someone age 19. High school complete. Been working at a part-time job. Out drinking with your friends on the weekend. Going to college in a couple of weeks.

While statistics say the chance of bad things happening when you’re young is remote, you never know. Take responsibility. A 19-year-old non-smoking male pays about $25 a month for $25,000 of whole life insurance. The premium never goes up. The insurance never runs out.

Somewhere on the horizon, not very far out, in all likelihood, you’re going to hook up with someone, and you will begin to procreate. The little rugrats are going to be looking at you for love and support.

If you or your spouse are taken out of the picture, the results will be devastating. Don’t let the financial world change too. Your family should still be able to stay in the home and play hockey or take piano lessons.

Some people think their group insurance is all they need. They would be wrong. People change jobs and companies change benefit packages. You are responsible for you.

A 26-year-old guy in great health can buy $500,000 of term life insurance where the premium won’t change for 20 years for less than $30 a month. If he ramps it up to $80 a month, he can have all his premiums back if he doesn’t die before the end of the 20 years. The death benefit is tax free.

You’ve more than replaced the next 10 years of income if you earn $1,000 a week. To say nothing of the interest.

You buy a house and take out a mortgage? Take the mortgage insurance from the bank. Normally, these group rates are favourable.

Personal mortgage life insurance on the other hand is less attractive. Instead, every five years you might want to buy $250,000 of additional term insurance. A 31-year-old male pays $30 a month for this coverage with the premium guaranteed for 10 years.

At some point, your child rearing responsibilities will lessen. Should you cancel the insurance? Probably not.

Instead, you might want to start exchanging it for some permanent insurance. You know that small apartment building you bought that you’re so proud of, since you appear to be a financial genius? At your death, it’s considered sold, and generally the profits are taxable.

Can you say fire sale? Don’t let your heirs have to sell it or any other investments to pay the tax man. Instead, let the discounted dollars of the tax free life insurance proceeds clean up your estate.

And if you leave them more than is needed, it’ll be a nice problem for them to solve while they are grieving your loss