ThE FIvE dO’S ANd dON’TS FOR ThE lIFE INSURANcE BUYEROne of those is if you become sick. If your health takes a significant turn
for the worse and you have cash value in your policy, it is possible that
you may want to suspend your premium and let the policy “feed” off of
the existing cash inside.
For example if you have $50,000 in cash value in your policy and your
premium is $15,000 your policy would last about 3 years without you
paying any more in premium.
There is no reason to give the company more premium than necessary
to achieve the ultimate result. We often have our clients suspend their
premiums when their health takes a turn for the worse since you do not
get both the cash value and the death benefit (unless you buy something
called Option B – which is not a good buy in my opinion).
Ok, now you have decided what type of policy you want to buy, but how
much should you buy?
Most companies will issue 20 times income on a younger person and
10 times income on someone older. They will also issue more than that
if you can show a reason you need the coverage. Like if you have 20
children, or large loans to cover a buy-sell agreement with a business
partner, large estate taxes, or you just really love buying life insurance
(just kidding on that last one).
When a customer comes into my office, we have a discussion about their
needs and goals. After that, they always ask me how much insurance do
I think they need. I could spend the next 5000 pages telling you stories
about people I know that actually had some insurance on the spouse, the
spouse died, and within 5 years or less they were out of money. This is
because they either spent the money foolishly, or more likely, they were
woefully under-insured.
People think that $250,000 sounds like a lot of money and it is. How-
ever, if your spouse makes $100,000 a year and you need that to con-
tinue your current standard of living it will not take long to deplete your
$250,000 worth of insurance money.
I have seen many wives have to go back to work, move out of their
house, take their kids out of the school they were in, and struggle, be-
cause they thought that they had plenty of insurance.