By: William Gibson
Reel Urban News COVID19 Series
For those of you concerned with leaving a legacy, if God Forbid the unthinkable happens to you during the COVID-19 pandemic. Here are a few things to consider before applying for insurance.
Types of Life Insurance
Term Life – gives you the most coverage for your money. But after the “term” is up your payments will significantly (normally 5X) increase, if you want to keep the policy enforce. For Example, you have been paying $70 / month for 30 years. In policy year 31 (30 year term) your payment will increase to $350 / month. So when your wages are no longer increasing and/or when you have retired you get this jolt of a new bill. You obviously can’t afford to make the payment any longer……so it lapses. It’s because of this that only 2% of term policies ever pay a death benefit.
Universal Life – A little more expensive than term insurance but if structured correctly should last your entire life. The challenge with universal life policies is that some are sold with the concept that you can withdraw cash from them without paying taxes (which is true) but if you don’t repay that money it may cause your policy to lapse in the future. I will try to make a complicated story simple. It’s because your cost of insurance rises every year with both Term and Universal Life. That rise in cost is factored into the price of Term Insurance. With Universal Life the cash value is there so that when the cost of insurance is greater than the premium you are paying, the policy will take the difference from your cash value. If there is no cash value, the Insurance Company will contact you and ask for an additional payment. If you don’t pay it your policy will lapse.
These top 2 are the reason we wind up with Go Fund Me campaigns, Car Washes, Bake Sales, Begging from relatives and other stuff. It’s not that our loved ones didn’t try to do the right thing, they did…..they just OUTLIVED their insurance. But that is also the reason as a Culture African American’s don’t leave legacies (Please Refer to The Black Enterprise Link Attached).
Whole Life – Is A lot more expensive than Term and a little more expensive than Universal Life. If you purchase this type of Insurance from a Mutual Company (A Company that is Private….owned by its Policy Owners) you will have cash value that grows because you are credited DIVIDENDS (Mass Mutual, Northwestern Mutual and New York Life are examples of Mutual Companies) This cash value is accessible, tax free and penalty free. You don’t have to pay it back either. If you don’t pay it back the amount of Cash Value you took is deducted from your death benefit when you die. Most of the Mutual Company’s pay dividends between 4% – 7% annually. This is much larger than the return you get from a CD or savings account plus you get the insurance. Whole Life is the vehicle that the wealthiest families in America have used for generations to transfer and retain wealth for multiple generations. The 2 most efficient ways to transfer wealth among generations are Home Ownership and Life Insurance (Doesn’t matter what type as long as it’s in force when you die).
Below are three links to further illustrate the importance of securing life insurance.
https://www.blackenterprise.com/african-american-wealth-zero-2053/
https://www.nytimes.com/interactive/2019/08/14/magazine/racial-wealth-gap.html
