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- Life Insurance
Good morning and Happy Friday!
Welcome to another edition of The Matt Viera Newsletter.
The newsletter with the goal to inspire you to live the life you actually want to live.
Thank you for your continued support.
By time you read this, I'll be making my way back to New York City by way of South Carolina.I'll stop in SC for the night to camp in a small, quiet campground. Then I'll wake up Saturday morning for the trek back into the city. I just hope the traffic isn't as bad as it looked when I was driving down.
Overall, the week in Florida was good (any time spent away from New York City is always a good time).
The weather wasn't great, however Panama City Beach is a place I'll definitely visit again in the future.
This week's topic is all about life insurance. A short primer if you will.
This topic was suggested to me a few weeks ago by a colleague (and one of the newsletter's newest subscribers) who is currently looking into purchasing life insurance.
It's an excellent suggestion and one I hadn't thought of (thanks for the suggestion Tracy).
If you're anything like me, the thought of life insurance is a subject that probably hasn't crossed your mind.
This suggestion came at a good time as I recently finished reading a personal finance book that takes a deep dive into insurance as a means of wealth protection.
Overall the book, Get Good with Money: Ten Simple Steps to Becoming Financially Whole by Tiffany Aliche, is an excellent book and well worth taking the time to read.
I'll post a link to the book and another resource for anyone interested in exploring life insurance further.
Again, this is a topic I never even thought of and do not have any experience with.
However, life (and disability) insurance are two types of insurance I will take a closer look at for myself simply because I read the above-referenced book.
I'll save disability insurance for a future newsletter. Today's focus will strictly be on life insurance.
What follows are some extracts from the book related to life insurance.
Without further ado….
Life insurance is a relatively dark subject.
When you're younger, you tend to believe you are bulletproof, and the only thing that can take you down is kryptonite.
The truth is you never know when an unexpected event may happen to you.
You need to shift "your focus from thinking about your death to thinking about the people your life insurance policy will provide for when you're gone."
Why do you need life insurance?
"You need life insurance now if you have a spouse, partner, children, dependents, or family for which you provide or if you have a lot of debt that won't be forgiven at death."
Consider life insurance as "a bridge."
It's there to protect you and your family as you're building your wealth. It's a financial bridge that links where you are now to the time when you can retire. The goal is once you have enough wealth accumulated (ideally by retirement), you won't need the financial benefits of life insurance.
Life insurance is intended to protect your income-earning years. It's also there to cover any major debts your passing may leave behind.
So what is life insurance?
Life insurance is a contract between the policyholder (you) and the insurer (insurance company) where you pay a fixed amount of money every month (called your insurance premium). In exchange for premium payments, the insurance company provides a lump-sum payment, known as a death benefit, to beneficiaries (the people you've chosen to receive the death benefit), after your death. As long as your payments are current, your beneficiaries will get what the policy promises, regardless of how much you've paid into it during your lifetime.
"There are two types of life insurance: term life insurance and permanent life insurance (universal and whole life are types of permanent life insurance)."
Permanent insurance (often referred to as whole life or universal), you will have monthly premiums until your death, at which time your beneficiaries will receive the full amount promised in the policy.
Permanent life insurance is structured differently than term in that you pay a monthly premium to get the full policy amount at death, but a portion of the amount you pay into it also accumulates a cash value. So you get a life insurance benefit (for your beneficiaries), but in your own lifetime, you can access the cash you've put in, too.
With respect to permanent life insurance, Aliche emphasizes in the book that if "you're part of the super wealthy 1%, then this type of policy [permanent] could possibly make sense for you—so go ahead."
She continues that insurance brokers may encourage you to purchase this type of insurance as a tax-planning strategy or as an investment vehicle.
However, a "permanent life insurance policy is not the only tax-planning strategy, nor is it the best, and it's probably the most expensive!"
Additionally, concerning the cash value of permanent life insurance, "the average annual rate of return for a whole life guaranteed cash value (a popular type of permanent life insurance policy) is 1.5%."
Aliche advocates:
Term life insurance policies are what 99% of the population should be looking into.
They're typically reasonably priced and they protect your beneficiaries during your earning/working years.
It's best to get it set up when you are younger and healthier.
You will spend a lot less if you get a term policy [rather than permanent] and [you can] focus on saving your excess…cash or investing it in other ways.
So what is "term" life insurance?
"Term life insurance is issued for a specified number of years (the term), and everything is based on that time frame."
How much term life insurance should you get?
Aliche says, "there's a simple rule of thumb that will help you identify the general starting amount for your policy: Insure yourself for a minimum of 10 times your income, preferably 15 times."
Additionally, consider "a 30-year policy if you're under 35, 20 years if you're under 45, and 10 years if you're 45 or older—essentially get the policy to age 65."
Finally, the younger you get it, the cheaper it may be.
Again, I'm no expert when it comes to life insurance and I certainly cannot speak to Aliche's expertise.
Please do not consider this as financial or legal advice.
This information is strictly for informational purposes.
I encourage you to speak with someone more knowledgeable about life insurance to find the type of insurance that will benefit you and your loved ones and fits your unique financial needs.
I hope you found this information helpful and a good starting point for further research.
Interesting reads:
This was sent to me by multiple people: A FIRE movement pioneer who retired early with $3 million at age 34 says he must return to work to afford his kids’ college education
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