Life Insurance: Not How Much But What Type 1/3

Family 2I started my career in insurance in 1987.  My Sales Manager at that time tried to convince me that, “Some life insurance is better than no life insurance when people do not have enough money for the premium.”

That was in 1987.  Not a great deal has changed in 3 decades.  I saw a sign, with that philosophy, just last week.

After 27 years of being an insurance agent, I am still shocked that rookie agents are still being taught the lazy way to determine how much life insurance is necessary.

The philosophy, “Some life insurance is better than no life insurance,” is only said by slick insurance agents who are more interested in their commissions than in meeting your insurance needs.

It is often said by insurance agents who would rather sell you a whole life or universal life insurance policy that will pay them significantly more in commissions than a term life insurance policy that will meet your needs fully, but their commissions will be less.

Rather than accepting blindly the philosophy, “some insurance is better than none,”  I encourage you to take the time to consider your life insurance options.

I recognize the fact that there are many reasons to own life insurance.  In this post I want to help you understand how to build an appropriate, basic life insurance portal for an employed parent with children at home.


The purpose behind life insurance is to provide money to heirs when you die.  Life insurance was not developed as an alternative to proper retirement or college education plans.  It was not invented to provide money to help you pay your future care expenses, pay taxes or give large sums of money to charity.

Insurance agents and insurance companies have tried to make life insurance evolve into a financial panacea but that is not its original purpose.

The original purpose for life insurance was to provide money to loved ones so that they could pay for a decent funeral for you.

In my opinion, since no person, other than a condemned man, knows exactly when he/she will die, you should consider $10,000 – $25,000 of Whole Life/Final Expense insurance as a base to your plan.

Certain types of Whole Life insurance, known as “Participating” policies, allow you to use future dividends to pay your annual premium.

Often, it takes 20 years or more before the annual dividend equals, or is more, then your annual premium.  However, when the dividend surpasses your premium, you do not have to pay your premium out of your income for that year.


Perhaps the second most important reason for life insurance, after final expenses, is to replace your income in the event you die before the children are no longer able to take care of themselves.

There are a couple of ways to do this, called…

  1. Capital Depletion –  Replaces income for a certain number of years.
  2. Capital Retention – Replaces income for infinity.

The math behind calculating how much insurance is required for Capital Depletion and Capital Retention can be complicated and daunting to some people.  To others, the math behind calculating how much life insurance is easy and simple.

The one thing that is certain is that, at no time, does the formula include, “Some insurance is better than none.”

Both Capital Depletion and Capital Retention calculations are probably going to produce some high life insurance needs.  If you try to price a Whole Life insurance policy to guarantee your loved ones will have enough money to replace your income if you are suddenly removed from the family pictures, it may be too expensive.

Fortunately, the life insurance industry has developed a form of life insurance that is affordable, for most Americans.

When you use Term life insurance, while the kids are still at home, you should be able to afford the premiums to buy the amount of insurance your family needs.

By building a life insurance portfolio with both Whole Life and Term Life, you should be able to afford the premiums necessary for a young couple, with young children, to replace a working parent’s income should they die young.

Although, the insurance companies have not provided access to Whole Life insurance rates to the public, click the banner below to see how inexpensive the Term Life insurance portion of your portfolio will be.

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