[00:00] covering what life insurance is, why you might want it, the differences between term, whole life, and universal insurance, how to apply, and more. insurance. Despite how important it is, it's one of the most misunderstood
[00:15] financial products out there. Some people think it's a scam, others view it as a potential investment, and many think that they don't even need it at all. Well, my goal with this video is to debunk all of this as we dive into the
[00:27] ultimate guide here to life insurance. I do have to quickly mention that this isn't tax, legal, or financial advice, and for specific advice, consult with your financial advisor. So, let's start here with the foundation and then work
[00:40] our way up. What exactly is life insurance? And guys, you can skip ahead with the table of contents below at any time. At its core, life insurance is a contract between you and an insurance company. You agree to pay them a monthly
[00:53] or annual payment, which is called a premium, and in return, the insurance company agrees to pay a set sum of money to the person or people you choose if you pass away while the policy is still active. That set amount of money is
[01:06] called the death benefit, and the person or people who receive it are the beneficiary or beneficiaries. But before an insurance company agrees to offer you a policy, they typically go through a formal process called underwriting,
[01:19] which is how they evaluate risk. This usually involves a questionnaire about your age, health, lifestyle, hobbies, line of work, and more, and sometimes it includes a medical exam. So, that covers the what, but how about why people
[01:32] actually get life insurance? The most common reason is potential income paycheck to pay the bills, like your spouse or your family, you want to have something in place should that income disappear. Life insurance helps to
[01:46] create a financial cushion for the exact moment that those who depend on you needed the most. It's generally not something that you buy for yourself. purchase with your loved ones in mind. Now, there are some other less common
[01:59] reasons why people buy life insurance like protecting business partners or business obligations, but for most people, it's about your dependents. of life insurance. There are two main categories, which is term life insurance
[02:13] and permanent life insurance. Term life insurance is temporary. It covers you for a specific period of time like 10, 20, or 30 years. If you pass away during the term with an active policy, generally pays out. And if you outlive
[02:28] the term, the policy expires. Permanent life insurance, on the other hand, is designed to last your entire life so long as you continue paying the premiums. [music] And within this category, there are two types of
[02:40] permanent life insurance. That is whole life and universal life. So, there's really three types of life insurance. Term life, whole life, and universal life. Term life insurance is often simpler and usually a lot cheaper.
[02:52] Meanwhile, permanent life insurance is often more complicated and more expensive. Well, let's go ahead and break down each of these three types of life insurance now. Starting off here with more details about term life
[03:04] insurance. As mentioned, this is going to cover you for a fixed period of time referred to as the term. The premiums for term life insurance generally don't change, which means you can lock in a fixed [music] guaranteed rate. If you
[03:16] pass away within the term, the policy typically pays the death benefit to your beneficiary or beneficiaries as long as there are no exclusions. And to quickly cover those exclusions, that typically includes self-inflicted death within 2
[03:30] years of policy enforcement, death from illegal activities, or death from high-risk activities. Term life insurance is a pure insurance policy. There is no cash value or complicated structure. The simplicity and general
[03:45] affordability of this type makes it very popular. For example, this is the type that I have for my two life insurance policies. For a lot of people, this is exactly what they're looking for. And if you want to get a free quote, check out
[03:57] Ethos, linked down below. They can get you policies up to $3 million with no medical exams required, and it takes as little as 10 minutes to apply online. for now, let's cover the next type of life insurance. Up next, we have whole
[04:13] life insurance. This is a permanent life insurance designed to last your entire lifetime, so long as you continue paying premiums. Now, life insurance introduces a new layer of complexity because it comes with something called cash value.
[04:27] But aside from this, it generally functions in the same exact way as term life insurance. You pay your premiums and you're covered in the event that you pass away, but for life this time. Here's where it's different, though. Not
[04:39] all of that premium paid goes towards your insurance coverage. Instead, part of it goes towards building something called cash value, which is essentially a savings component within the insurance policy. And some people may think of
[04:51] whole life insurance as an investment, but that's actually incorrect. It's better understood as a policy that can build cash value over time. The average annual rate of return on the cash value for whole life insurance is 1 to 3.5%
[05:05] so it's steady and predictable growth, but not high returns. Now, we're going to explain how this cash value works, but I want to wrap things up by covering the third type, universal life insurance. This is another type of
[05:17] with a greater level of flexibility compared to whole life insurance. Whole life insurance typically has fixed premiums, which means you pay the same amount each month. In addition, it has a fixed death benefit and some level of
[05:31] guaranteed cash value growth, although the guaranteed rate can be zero. You can think of this as a very predictable form of permanent life insurance. Universal life insurance offers flexible premiums, meaning that you can pay more or less
[05:45] over time. It also offers cash value that can be tied to interest rates or the markets. For example, indexed universal life insurance is tied to certain stock indexes. And in some cases, universal life insurance has a
[05:58] flexible death benefit. There's more moving parts, more flexibility, and the potential for higher growth, but it's definitely the most complicated of the Circling back to the cash value component, let's talk about that in more
[06:12] detail now because this is the aspect of permanent life insurance that often if you've gotten any value out of this video so far, make sure you drop a like and subscribe. When you pay your premium for a permanent life insurance policy,
[06:26] it typically gets divided into three buckets. The insurance coverage cost, administrative fees, and finally, the cash value. Early on with a policy, a significant portion of the payment goes towards the insurance coverage cost and
[06:40] administrative fees, kind of like how with a mortgage, it's mostly interest paid at the beginning. That means it takes some time for the cash value to build relative to what you pay in, typically in the range of 10 to 15
[06:52] years. And you can borrow against this cash value. These loans are often a lower interest rate compared to something like a personal loan because they are backed by your cash value as collateral. However, un-repaid loans
[07:06] reduce your death benefit. But now let's talk about what happens in two common scenarios. For starters, what happens if you decide to cancel or sur- render the policy. In this scenario, you would give up the death benefit, but receive the
[07:19] surrender value, and this is the cash value minus any applicable fees. If you do this, your policy is canceled. Now, in the other scenario, let's talk about what happens if you pass away. In this case, your beneficiaries would receive
[07:33] the death benefit only. The cash value isn't paid in addition to the death benefit, and instead, this gets absorbed by the insurance company. So, let's talk We're going to be using Ethos, which is an instant life insurance provider. You
[07:48] ryanscribner.com/ethos to follow along with me step-by-step. On their website, the first step is going to be clicking on the green check my price button to get started. At that point, it's going to ask you about your goals for having
[08:03] life insurance and who depends on you financially. After that, Ethos is going to assess your coverage needs by asking a few questions, such as when you'd like to get coverage, gender, number of children, and more. They're also going
[08:16] to ask whether or not you have a will or estate plan in place because eligible policies include estate planning tools, too. From here, they're going to ask you about your total debt and mortgage balance before making a recommendation
[08:28] about what type of life insurance might be a good fit. After that, it's going to ask for some basic details, like your name, date of birth, what state you were born in, your zip code, and more. Then, you simply enter your email and confirm
[08:42] for the health questionnaire, where you're going to have to answer some basic questions about your lifestyle, your health, and more. Now, as I'm sure information that I'm personally comfortable with sharing on YouTube, but
[08:55] it takes just a few minutes and then you'll be able to see your quote right there. Overall, the process is really simple, guys, so I encourage you to click the link down below and check out Ethos today. Let's quickly talk about
[09:07] And while there isn't a one-size-fits-all, there are some general guidelines. One of those is the 10x income rule, where you simply take your annual income and multiply it by 10. So, if you're making $75,000 a year,
[09:22] you might take out a $750,000 life insurance policy, for example. But, keep in mind, this is just a starting point here, and you might need to adjust it based on your specific situation. As I'm sure you can imagine here, personal
[09:35] debt levels, your mortgage balance, whether or not you have children and how many, if you have a stay-at-home spouse and more can all factor in here. That's why another popular method for calculating this is called the DIME
[09:48] method, which stands for debt, income, mortgage and education. First, you would you want to pay off. So, let's say $40,000 for example. Then, you figure out how many years of income you want to replace, such as 10 times your salary
[10:04] factor in the remaining balance on your mortgage. That way, your family could >> [music] >> So, let's say that's $320,000 for example. And finally, you would think about future education costs for
[10:19] your children. The current average cost of college in the United States is 38,270 per student each year. For one kid pursuing a four-year education, you might factor in an additional $160,000
[10:33] here. At that point, you would add all of this together and in this example, you'd actually want to have about $1,270,000 of coverage. So, you might end up pursuing a life insurance policy in the
[10:45] pursuing a life insurance policy in the 1.25 to 1.5 million dollar range. Now, a whether or not you should pursue a term or whole life insurance policy. Whole life insurance does offer a few clear advantages. The biggest one for most
[11:00] being the lifetime coverage. As long as you pay the premiums, the policy is designed to stay in force for your entire life. In addition, premiums are normally a fixed rate giving you consistency. Now, the same is generally
[11:13] true for term life insurance premiums, but if you have to get a new term life insurance policy after say 10 years, the insurance premium could be much higher. And another advantage to whole life insurance is that cash value component.
[11:26] This can allow you to borrow against it or possibly surrender the policy down the line for the surrender value. A final benefit worth mentioning about are approved, you don't have to re-qualify medically later on. With term
[11:40] life insurance, you would need to if the policy expires. And if your health changes, this could influence premiums or even being able to get covered at all. But with that said, whole life insurance can be significantly more
[11:52] expensive than term life insurance for the same death benefit, and that is the biggest downside for most. For a lot of people, term life insurance paired with investing separately is the most practical and cost-effective approach.
[12:05] It allows you to get a large amount of coverage for a low monthly cost, and you could always invest that cost difference however you want to. But with that said, whole life insurance can make sense for some unique situations like high net
[12:18] average person who simply wants to working years, term life insurance is often the most straightforward solution. really isn't as complicated as it may seem. At its core, it's simply a
[12:33] financial safety net designed to protect the people who depend on you. Yes, it can become more complex when you get into whole life insurance, but for most people, term life insurance makes the most sense. Keep in mind though that
[12:46] every situation is different, and the right choice for you comes down to your financial situation, how long you need coverage for, and more. If you're ready click the link in the description to get started with Ethos today. This might be
[13:00] one of those I'll do it later things for you, but I would really suggest taking action on this now because you don't want to wait until something happens you made it to the end of the video, make sure you drop a like and subscribe
[13:13] if you haven't already. And if you have any questions, leave a comment down below and I'll do my best to answer them. Thanks for tuning in, and I'll see them. Thanks for tuning in, and I'll see you next time.