If you know it, great, if not, well, here you go.
The first part of a financial plan is your savings. 3 to 6 months liquid and easily accessible savings that are in the amount of what you make and or live off of for 3 to 6 months.
The second part of your financial plan is to have an emergency backup in case you pass away as a breadwinner and leave your family to fend for themselves. This means a life insurance policy. (The first two parts of your financial plan (savings, life insurance) can be done together at the same time).
Life insurance isn't really necessary if you're single. The only reason for having an insurance policy is to cover in the event that you pass away and leave people dependent on you behind.
There are many types of policies. But I'm not going to go into all the details, but, what we call a "cash value" or "whole life" policy is another "scam" the insurance companies are legally able to sell you. They promise you savings AND an insurance policy. The "savings" comes out of your death benefit and if you ever touch the "savings" they charge you a pretty hefty fee for touching your OWN MONEY. Plus the amount of money you spend for "saving" money is just ridiculous. They are going to get their money back. Believe me. Here's Suze Ormon on the difference between policies - Suze Ormon is a financial adviser television/radio personality.
There are also "universal life" policies that require a securities license (able to do investments) and can be used as tax shelters and can be traded like stocks, etc. The reason it's called a Universal Policy is because "anything in the universe can happen in that policy." In short, you want a policy that's as straight forward as possible with as few complications. You want your policies and protections as separate from each other as possible so if something goes wrong with one you aren't screwed in every other area as well - you don't want an insurance policy affecting your savings or health insurance do you? NO!
Variable Life Insurance also makes a profit and can be used as a tax sheltered savings in some instances - yadda yadda.....not what you need and when you're finances are limited not the best use of money to cover everything you're working on.
Return of Premium Life - these are policies that promise you ALL your money you pay into them back if at the end of the term you don't get killed over the course of the policy. The disadvantage of this is: 1) They are more expensive for the amount of coverage you get and 2) the value of money is about to drop pretty seriously so that what you get back isn't going to be worth what you get back (remember the rule of 72) so it's actually a waste of your money. Meanwhile the insurance company has gotten your money which you gave them while not asking for any interest and lent it out for interest and made a huge profit and then just give it all back to you at the end while not providing a superior service for the higher price they charge you.
What I recommend is a simple "term life insurance policy" - it means it covers you for a period of time and then after that you have to renew it.
They can come in ART (Annual Renewable Term) or 5 year or 10 or 15, 20, 25, or 30 year policies with a level premium (same price you pay for it in other words) for the 5,10 or 30 or however many years.
If you go with a 30 year policy that's going to get you a cheaper rate that's going to last you quite a while because, believe me, in 30 years from now, the coverage you're going to get for what you make a contract to pay today - you're not going to find it. It's important to lock in that rate.
Your policy is portable with you. Doesn't depend on you having a job....nothing. You're free and secure!
Your policy should also be approximately ten times what your annual financial needs are as well as cover all your debts.
Now you can go with a single policy for 1.5 million, or you can get three policies for $500k. Either way, pay attention to the stipulations for payout. You hear commercials that there's a 40 year old man got a policy for 1 million with a heart problem for $20/month. I guarantee you if he dies of that heart problem, he's not covered. Don't be suckered. READ. COMPARE.
You will have the option in a policy to cover your family. First, the more money coverage you want, the more rigorous the screening is. Getting your mouth swabbed to find if you smoke is pretty common. Having height weight measured with blood pressure taken - also common with higher benefit policies. But if you're healthy, and young, you can get a preferred rate which means your insurance is cheaper for more coverage.
To cover your family, remember the point is to cover the breadwinner or the children in the event of the death of both caretakers. Not make a profit. So if you have children, you're not probably going to want or even need $1.5m for the death of a child (Blood money), but just enough to cover their burial which will be about $20k each at absolute most (until Obama and Geithner eff the economy up its back orifice and make money worth half of what it is). If your spouse isn't the breadwinner, then whatever is going to cover their burial and loss of their contributions to family (do they provide childcare? Figure out how much and how many years that's going to run and add it up and put it down!)
It does no good to put together a financial plan and not be covered in the event of a catastrophe that wipes your family out.
Anyways, I hope this helps!
