Why life insurance is a must-have financial tool

Life insurance is a critical financial tool often overshadowed by discomfort with discussing death. Despite the topic's sensitive nature, understanding and obtaining life insurance may be crucial for safeguarding your family's financial future.

Yahoo Finance contributor Ross Mac delves into the importance of life insurance policies, highlighting their significance for policyholders and their beneficiaries.

For more expert insight and the latest market action, click here to watch this full episode of Wealth!

This post was written by Angel Smith

Transcripción del vídeo

Well, everyone, it's never been fun to think about the reasons why you might need a life insurance policy.

But that doesn't mean it's something that should be avoided for more.

Let's welcome in Ross Mack, who is the Yahoo finance contributor.

Joining us here to talk all things life insurance today.

Where do people need to start when they're going through the mental process of this?

Yeah, it's obviously a huge burden to think about, you know, we're gonna pass away, right?

The one thing that's actually definite in this lifetime is that we're all gonna pass away at some time.

And the worst thing we could do is leave our dependence to leave our loved ones, both grieving as well as financially burdened.

And for that very reason, we need life insurance and you gotta understand what it is.

It is supposed to actually replace your income.

And so you gotta understand like when it's all said and done, it costs about $8000 just to pass away, right?

Like it, it costs your final costs, you know, in order for your body to go to the corner actual to have a funeral, et cetera, it is roughly like the median cost is roughly $8000.

And so when you're thinking about life insurance, it's a few things you wanna say.

Ok, one, I wanna leave my dependents with some money that is gonna replace my income.

And so you know, why do I need to do that?

Well, one that might actually help them pay off the remaining balance on my mortgage, that's also gonna hopefully give them some type of financial footing that doesn't allow them to, like I say, continue to be grieved grieving, but also be financially burdened and having other stresses in their life.

Certainly.

And so as we're taking a look at some of these reasons here on the screen, if we can just toss that back up real quick because you were just running through some of these, it also hits on the wealth transfer and the state planning.

Let's just touch on that once again here real quick.

So when it's all said and done, right?

Like when it comes to state planning, one component of it is to have life insurance, right?

And you have to understand if you were to die without a will, unfortunately, your money is gonna all your assets are gonna go to probate and from there that could potentially be costly.

So when we're talking to state planning, life insurance is a big component and that now allows you know, your wealth to actually transfer based on all of your wishes, right.

So you got three kids, you get, you know, a niece, a mom, you have the ability to divvy that up based on what you actually want.

And then when it comes to saying exactly how much you need, I always find that to be a big one.

Right.

Because the average person feels though, feels as though.

Oh, I work, you know, I have life insurance at my job through your employer.

That should be enough.

Right?

That should be sufficient.

Well, the reality is that's actually not enough, right?

The average job, it's called group life insurance.

You're gonna get roughly 1 to 2 times your salary.

So if you think about that, right, if you were to pass away and you get a lump sum, say you make $100,000.

Well, guess what your family is only used to having that $100,000 for one year.

The idea is that you wanna have roughly 10 to 12 times your a annual salary.

So when you're thinking about exactly how much life insurance you need, understand that what you get from your employer is not enough.

You need to say, ok, if I make $100,000 I need to have a life insurance policy at a minimum of a million dollars up to maybe $1.2 million.

And the idea there is this right?

You get that death benefit.

Now your family has the ability to take that and invest that Now, if you're investing, call it a million dollars and make, maybe call it AAA safe 7% you know, tax free after taxes or something.

Now, your family is able to actually replace your income and then you could actually reconfigure that thinking, ok, say I have 23 kids and they're young of age or not, of age.

Well, maybe another expense to think about is sending them to college.

So you might actually wanna have more.

But if there's one thing, a person's looking, looking at this right now, understand that what you get at your job is not enough.

And so one of the things you wanna think about is ok, what other, you know, life insurance could I get to actually supplement that?

That's a great reminder and a reminder that I need to go complete my physical for my life insurance policy here.

So I appreciate that.

Thanks so much.

Uh Ross Mack Young finance contributor.