Do you really need life insurance?  Most people who have a family do.  I say most people because if you live long enough and have a good retirement plan, a good Roth IRA, and no debt, then maybe you don’t need life insurance at that point.  But let’s just assume you haven’t reached that point in your life yet. Let’s assume you are married, have 2 kids, owe $200,000 on your home, and have a yearly income of $100,000.

Okay, you need life insurance!

Now, back to your good ole brother-in-law, Earl.  Earl gets his life insurance from a guy he plays golf with who is a ‘financial advisor’.  His golf buddy sells all sorts of financial things and seems to make good money doing it. This guy has a huge house and gold rings on each finger and so he “must know what is best for Earl”, so Earl listens and does what he says.

This is the wrong approach to life insurance.  9 times out of 10, Earl’s golf buddy will be selling some sort of Cash Value insurance. It goes by many names, such as “whole life”, “universal life”, “investment life”, you get the idea.  They all have the same thing going for them.  They cost up to 10 times the price of a good term policy and make the guy selling it able to afford his big house.

You may have gathered by now that I am totally against these types of policies.  There is almost NO REASON to buy them, yet so many people still do.  I will try to convince you that all you need is a level TERM Life Insurance policy.

I should first say that even within the margins of this article, or some ad within the text here may point you to something other than what I am describing.  I cannot control the advertisers here to the extent that only term life insurance advertisers will be here. Just beware.  I will provide a link to a company you can try, but there are many, many , term insurance providers and you should just shop around to get the best rate for your circumstances.

Some facts about Term Life Insurance.

1. It is about 10 times cheaper than Cash Value life insurance. More or less, but it is very inexpensive compared to cash value polices.

2. Term protects you same as cash value. There is no difference, as the cash value policy has an underlying ‘term’ policy to give you the protection amount.

3. Level term policies can be bought for 10, 15, or 20 years.  This means you can buy say a $500,000 term policy that has premiums that are level for the entire period.  This is the best value usually. Sure some will argue that the time value of money erodes your real protection level, and that is true. However, the premiums are also going ‘relative’ to the value of money also.  If this is too confusing, don’t worry about it.  It just means $500,000 dollars won’t buy the same thing 10 years from now as it will today.

4. Some say you should buy about 10 times the amount of your annual income.  I think that is a good number, but it really depends on your personal circumstances.  For me, my company provides a death benefit, in the form of an annuity, if I should die.  This sort of thing has to be factored in.

….to be continued..

In the mean time, you can click the banner ad below and compare a bunch of term insurance policies for free. Just fill out a few simple questions and submit. You will see what I am talking about regarding the low cost of term insurance.

low cost term life insurance

______________________________________________________

This web site offers general information for managing personal finances and does not recommend specific financial actions. For financial advice tailored to your situation, please contact an expert such as a CPA or a personal financial advisor.

There are things you can do to minimize the damage of this. Again, it really applies only to taxable accounts. Here a few.

1. Check the funds’ distribution date before you buy. That will be the date the fund reports the dividends and this is usually near the end of the year. If you were to buy a fund right before this date, you may have to pay taxes on transactions that happened before you owned the fund. Just watch out for this.

2. Look for funds that have a low turnover rate. About 25% is a good rule to follow if you are looking for a low rate. This usually means the fund managers are “tax conscience” and are deliberately trying to keep tax ramifications low. Fund managers can reduce tax burdens by selling some of the losers at the same time as the gainers.

3. Avoid funds with a turnover rate higher than 100%. Yes, funds can have rates much much higher, even 5 times higher. It just depends on how many times they buy and sell individual stocks during the year. Unless it is a really exceptional fund, I would steer clear. There are so many great funds out there. Keep looking.

4. Finally, you can always just buy an index fund. Index funds such as a S&P 500 index have very little to no taxable dividends to distribute.

So get your Roth IRA facts and get yours funded so you can buy all those high turnover funds you want inside that Roth account.

As usual, you know I don’t give professional tax or investment advice. These are just my opinions, and you should seek a professional if you need that advice.

If you liked this article, please let somebody know. Leave me a comment, or submit this to one of the social bookmarking sites below. I can use the exposure! Thanks.