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Family Safety Net

Life insurance is not for you; it is for your family. There are two major categories of life insurance, term and permanent. Term life is considered a death benefit meaning it doesn’t convert to cash until the policy holder passes. Term life insurance is an inexpensive coverage that leaves income free to be utilized for other investments. With term life insurance, all your payments are put towards a death benefit to cover your beneficiaries and has no cash value or investment components. You will be paying small premiums in exchange for a large death benefit. Term policies do expire or terminate hence the name.

Permanent life insurance is considered a life benefit which allows the policy holder to accumulate cash value while they are alive. Permanent life insurance normally has management fees and commissions associated with the policy. When Financial Advisors refer to permanent life insurance as an investment, they are referring to the cash-value or the savings component of the plan which enables you to borrow money against your policy. You can buy permanent life insurance and use the cash value for future savings goals, or you can buy term life insurance. Regardless, of which life insurance you decide to purchase the key is to purchase one and cover your family. With permanent life insurance you can borrow against the cash value of the policy to buy a house or pay for your children’s college without paying taxes or penalties. The cash-value component on permanent life insurance policies has tax deferred growth. You don’t pay taxes on any interest, dividends, or capital gains until you withdraw the money. You can get this same tax deferred benefit by investing in tax favored retirement accounts such as traditional IRAs, 401(k), 403 (b) and self-employed 401 (k) plans.

For example, as a non-smoking 30-year-old woman in excellent health, I was able to get a 20-year term policy with a death benefit of $500,000 for $240 per year. If I were to die at age 49 after paying premiums for 19 years, my beneficiaries would receive $500,000 tax-free when I paid only $4,560. That is a $495,440 return on my investment should my loved ones ever have to use it. If I live another 60 years and never have to file a claim, which is a small price to pay to ensure my loved ones are covered plus it is a means of celebration. I want my service to be a momentous occasion, but it doesn’t have to as elaborate as the late Aretha Franklin. This talented singer, song writer, civil rights activist and ultimate diva had 50 pink Cadillac Escalades chauffer her body to her worldwide live-stream home going service where her corpse was displayed in not one but two wardrobe changes.

I decided to purchase life insurance to cover all my final expenses (include the burial or cremation and memorial service) prices normally range from $5,000 - $15,000, to cover my personal debts and to supplement my income for a few years. We may die but our debt doesn’t! I’ve experienced first-hand the stress, drama and additional heart ache encountered by families who couldn’t afford to bury their loved ones. They are not even able to properly grieve because they are busy trying to track down funding for the funeral service. It is a terrible position to put your loved ones in, and I refuse to do that to my family. I don’t want them to worry about money during an already difficult time.

While I am alive, well and thankful for every day I wake up, I will continue to build wealth for myself and my daughter. My daughter’s investment portfolio will have hundreds of thousands of dollars saved in it by time she reaches my age. She can put those monies towards paying for college, buying a new home or as capital to launch her own business. I want her to begin her adult life debt free so she can focus on establishing a career she loves and a job that pays the bills. I also wanted peace of mind to know my family will never have to struggle financially if something happens to me. I am working on living a legacy for my daughter. I am currently planting the seeds to grow a garden that my grandchildren will get to run around in.

What we learned:

  • What life insurance is and the importance of having coverage.

  • Term life insurance vs. permanent life insurance.

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