Most everyone thinks about whether they should own or rent their house in Charlotte.   You should also consider if you should own or rent your Life Insurance.

Here is the difference:

1. Employer supplied Life Insurance is Rented.  You lose that ‘lease’ when you leave that job.  If your health changes, you may find yourself unable to rent new insurance and you could be stuck without protection you need or desire for your family.

2. Term Insurance is also Rented.  With Term Life Insurance, you pay premiums for a specific period of time. While you are paying the premiums, you have insurance coverage.  Once the term expires, so does your insurance.  With term Life Insurance, once you stop making the ‘lease’ payments, you no longer have the insurance.  In the case of company supplied insurance, when you stop working for that company, they quit paying the ‘rent’ for you. 

3. You own Permanent Insurance.  This insurance can either be Whole Life, Variable Life, or Universal Life.  The key difference is that this insurance doesn’t quit on you when you leave a job or when a term expires.

Most people should have a combination of both types of insurance – Permanent and Term.  Just like your house – it’s pretty common to own your primary residence, and rent your vacation spot.  Since you only rent some insurance, it is usually cheaper to rent than to own.  Rented insurance makes it easy to get a lot of coverage for a lower cost.  This is particularly useful for younger families when they are starting out – there are lots of expenses, but the need for the insurance is usually at its greatest.  So, rent some insurance while the cost is low and the need is high, but also buy some permanent insurance for the long term.

As a rule a rule of thumb, I usually recommend permanent insurance to cover the mortgage balance.  This way, as a minimum, your family could always own the home outright if the insurance was needed.  Over time, most permanent insurance will start to build up ‘cash value’, just like a home you own will start to build up equity.  I’ve run several scenarios and what I found is that a properly designed permanent life insurance policy will always pay off the mortgage, and after the 30 years of the mortgage, the cash value can be greater than the amount of the original mortgage.  Compared to a rented Term Insurance policy that will expire about the time a mortgage gets paid off, a permanent insurance policy’s cash value can be a valuable source of retirement cash for a homeowner.

If you are able to benefit from refinancing your house right now, you can do your family a great service by using the monthly savings on your mortgage to make sure you have enough life insurance to protect what is important to you.  If you need to talk with an insurance professional, shoot me an email - I am happy to recommend someone for you.

September is the Life Insurance Industry’s Life Insurance Awareness Month.  I’m a believer in Life Insurance when looking at a person’s house and how they can protect what they have.  There are many threats to the wealth you have in your house, but the most devastating is obviously the early loss of life of the person making the house payments and supporting the current life style.

So, who needs life insurance?  Short answer: You do, if someone would suffer financially if you were gone.

Longer Answer:  The following is from www.LifeHappens.org. LifeHappens is a life insurance industry sponsored educational website:

I f someone will suffer financially when you die, chances are you need life insurance. Life insurance provides cash to your family after your death. This cash (known as the death benefit) replaces your income and can help your family meet many important financial needs like funeral costs, daily living expenses and college funding. What’s more, there is no federal income tax on life insurance benefits.

Most Americans need life insurance. To figure out if you need life insurance, you need to think through the worst-case scenario. If you died tomorrow, how would your loved ones fare financially?

Would they have the money to pay for your final expenses (e.g., funeral costs, medical bills, taxes, debts, lawyers’ fees, etc.)? Would they be able to meet ongoing living expenses like the rent or mortgage, food, clothing, transportation costs, health care, etc? What about long-range financial goals? Without your contribution to the household, would your surviving spouse be able to save enough money to put the kids through college or retire comfortably?

The truth is, it’s always a struggle when you lose someone you love. But your emotional struggles don’t need to be compounded by financial difficulties. Life insurance helps make sure that the people you care about will be provided for financially, even if you’re not there to care for them yourself.

To help you understand how life insurance might apply to your particular situation, we’ve outlined a number of different scenarios below. So whether you’re young or old, married or single, have children or don’t, take a moment to consider how life insurance might fit into your financial plans.

Like I said earlier, I am a believer and an owner of life insurance.  I want my family’s lifestyle to be the same if I am not here.  One other important aspect of Life Insurance is the different types. I will write about that more this month, but in short, take a look at the benefits of permanent life insurance and the cash value inside a Life policy as an asset class.  The Cash Value in my life policy grows tax free, is immediately available to me in an emergency, and can be with withdrawn tax free later on if I choose to.  Compare cash value to a money market account or IRA account and you will find some significant differences.

Within the context of home ownership, there should be, at a minimum, enough life insurance in place to pay off the mortgage in the event of a premature death.  A better plan would also sustain the lifestyle of the surviving family members, and possibly fund other important financial goals, such as educating the children or securing retirement lifestyle.

A great time to look at life insurance needs are when buying a new house.  For a lot of people, however, this wasn’t mentioned last time they bought a house, so using the savings from a refinance to pay for insurance is also something I recommend.

I recommend using an insurance professional to get a complete analysis of the need and types of life insurance.  My feeling is that some things are too important for DIY projects (Do It Yourself).