McKee Financial

McKee's Weekly Newsletter 9-21-2020 What Is Life Insurance and How Does It Work?

September is Life Insurance Awareness Month. 

We all understand the value of having auto insurance, home insurance, health insurance, but sometimes overlook the importance of having the correct amount of Life Insurance and even knowing the correct type of Life Insurance for your needs. 

Today is the best day to look at what you currently have and confirm it meets your needs.     


What Is Life Insurance and How Does It Work?


So you’ve got your home and auto insurance policies set up and crossed off your list. But what about life insurance? If you haven’t gotten around to it yet, you’re not alone: Last year, only 60% of Americans had some form of life insurance in place.1

Maybe getting life insurance is already on your radar. Or maybe it's not—because life itself is just so busy! If you have loved ones who depend on your income, it’s worth knowing how life insurance can protect them if anything happens to you. So here’s what you need to know about life insurance—how it works, what it costs, and which type is right for you.  

What Is Life Insurance?

Life insurance is an agreement between you and an insurance provider that, in exchange for your monthly payments, the insurer will pay a sum of money to your loved ones when you die.

Okay, it’s not a fun topic to think about. But focus on this: You buy life insurance not because you’re going to die but because those you love are going to live—and you want them to be financially secure after you’re gone.

Life insurance can cover loss of income, funeral expenses, debt and other financial needs that might come up after you pass away. Once you sign on the dotted line and start paying monthly, what you’ve really bought is peace of mind—peace that you’re providing financially for your loved ones even after your death.

How Does Life Insurance Work?

Reading a life insurance agreement can feel like the most boring thing in the world, right? But you really only need to know a few common life insurance terms to help you understand how it works:

  • Policy – the contract between you and the insurance company
  • Premiums – the monthly or yearly payments you make to own the insurance policy 
  • Policyholder – the owner of the policy, which would normally be you (the one insured), but you could buy a policy for another person
  • Death Benefit – the money given out when you die
  • Beneficiaries – the people you choose to receive the death benefit of your policy (like your spouse or children, but it can be anyone you name)

In a nutshell, once you (the policyholder) start paying your premiums, the insurance company guarantees they’ll pay the death benefit to your beneficiaries when you die.

Types of Life Insurance

Let’s start with the basics. There are two main types of life insurance: one that lasts for a set number of years (term life insurance) and one that lasts through your entire life (permanent life insurance).

Term Life Insurance

Term life insurance provides coverage for a specific amount of time. If you pass away at any time during this term, your beneficiaries will receive the death benefit from the policy.

A term life plan is more affordable than a permanent plan because it has a simple goal of paying out a death benefit—no other bells and whistles (like doubling up as an investment tool, which will just bloat your premiums).

Permanent Life Insurance

Permanent life insurance lasts throughout your entire lifetime. It comes in the form of whole life, universal life or variable life insurance—each differing slightly from the other. 

Besides the insuring-your-life part, permanent insurance adds an investing-your-money piece to your policy called cash value. The insurance company takes a chunk of your premium to start an investment account.

But here’s the deal: Cash value life insurance is one of the worst financial options out there! There are a ton of better places to invest that will give you a better return for your buck.

Do I Need Life Insurance?

Almost everybody needs life insurance. No matter what stage of life you’re at, life insurance makes up an important part of your financial security.

Let’s take a look to see where you might fit in:  

The Young Professionals

You may have some credit card and student loan debts that will need to be paid after death. But if you’re completely debt-free with no dependents, then all you really need to worry about are burial costs. And if you’ve signed up for a group life insurance plan through your employer, there may not be an urgent need to take out your own policy—yet!

The Newlyweds

Congratulations! You’ve just started your new life together, and that means you’re there for one another through thick and thin. You should both have a life insurance plan in place.

This isn’t just about paying off debts if one of you passes away—it’s about protecting and providing for the future of your spouse as they grieve your loss. Get enough life insurance to make sure they’re taken care of.

The Parents

If you have children, both you and your spouse need to be covered, even if one of you doesn’t work outside of the home. The absence of a stay-at-home parent would greatly impact the family budget. Childcare costs aren’t cheap these days.

Consider what it would take to run the household, provide for your kids (including college), and possibly pay off your home in the years following your death or the death of your spouse. Trust us—you want (and need) this peace of mind.

The Retirees

At this point, you might already have hefty retirement savings in place. You could even be well on your way to becoming self-insured and not need any life insurance. That’s a great place to be!

But let’s say you’re still paying off your house and trying to add to your retirement savings. If you died today and your spouse no longer had your income to rely on, would the amount in your savings accounts be enough to take care of them?

How Much Does Life Insurance Cost?

The cost of your life insurance premium will depend on the type you’re buying (whether it’s term life or permanent), but other things play a role too, like your age, health and lifestyle.

Let’s look at Sarah. She’s in her 30s, a nonsmoker, in good health, married with one child and earns $40,000 a year. On average: 

  • If she took out a 20-year term life policy with a $400,000 death benefit, she would pay around $18 a month for this plan.
  • If she opted for a permanent type of life insurance with a death benefit of $125,000, she would pay around $100 a month for it.


This is what insurance providers will look at when they’re working out your life insurance premium:

  • Age
  • Gender
  • Personal and family medical history
  • Weight
  • If you smoke
  • If your lifestyle includes risky hobbies like skydiving, shark wrestling and the like
  • If you regularly travel to dangerous parts of the world

After they have these details, the insurance provider will schedule a medical exam with you (unless you’re buying a no medical exam life insurance policy).

So, now that you know what they’re after, how can you reduce your premium?  While you can’t do much about your age, you can quit smoking, take up regular exercise and try lose weight if you need to, to bring those the premiums down. 

How Much Life Insurance Do I Need?

Financial experts like Dave Ramsey recommend setting your death benefit at 10–12 times your annual salary. This is for an important reason: providing for your family’s future.    

Let’s look at Sarah from our example earlier and how a death benefit of 10–12 times her income could really help her family:  

  • Sarah’s salary is $40,000, and her policy death benefit is $400,000 ($40,000 times 10).
  • If Sarah died, her family could invest the $400,000 in a mutual fund that makes a 10% return.
  • That investment could yield $40,000 per year—Sarah’s original salary.

The interest that Sarah’s family could earn each year would cover Sarah’s salary. And the original amount invested could stay there indefinitely as they use the interest to help get through life without Sarah.

Most importantly, this provides peace of mind and financial security for Sarah’s loved ones during a truly difficult time.

Is Life Insurance Worth It?

Life insurance is worth it, and the right type of life insurance makes all the difference!

Bottom line: Term life insurance is your best option because life insurance should be protection and security for your family—not an investment or money-making scheme. Let the mutual funds handle the investment part.





Interesting Economic Facts

ALL THE STOCKS - The total stock market capitalization of US equities peaked at $36.1 trillion as of 2/19/20, fell to $23.4 trillion as of 3/23/20, and has bounced back to $35.6 trillion as of Friday 9/11/20 (source: Wilshire).

BUT THE LARGEST IS OURS - 3 of the 4 largest companies in the w orld are Chinese corporations. The rankings are based upon annual revenues. Each of the top 4 companies generate more than $1 billion a day in revenue (source: Fortune).

USUALLY - The bond market was up +6.9% YTD (total return) through the close of trading on 9/10/20. If the bond market produces a positive total return for 2020, it would be 20 of the last 21 years that bonds have been up. The Bloomberg Barclays Aggregate bond index, calculated using 6,000 publicly traded government and corporate bonds with an average maturity of 5 years, was used as the bond measurement (source: Bloomberg).

TREASURIES - The amount of outstanding Treasury debt issued by the United States has almost doubled in less than a decade, rising from $8.853 trillion on 12/31/10 to $17.154 trillion as of 3/31/20 (source: SIFMA).

FROM A RECORD HIGH - The US has tracked domestic oil production since January 1920, i.e., for 100 years. Domestic oil production first exceeded 10 million barrels a day on 2/02/18, rising to a record 13.1 million barrels a day on 3/13/20, the day President Trump declared a national pandemic emergency. Since then, domestic oil production as fallen steadily to 10.0 million barrels a day as of Friday 9/04/20 (source: Department of Energy).

FEWER CHOICES TO PICK FROM - There w ere 400,000 fewer existing homes for sale nationwide at the end of July 2020 (1.5 million) than there w ere at the end of July 2019 (1.9 million), a drop of 21% on a year-over-year basis (source: National Association of Realtors).

MOSTLY MORTGAGE DEBT - Total household debt in the United States was $14.27 trillion as of 6/30/20, down slightly from the all-time record of $14.30 trillion set as of 3/31/20. 69% of the $14.27 trillion household debt total ($9.78 trillion) is mortgage debt (source: Federal Reserve Bank of New York).

NO INFLATION - Inflation in the Eurozone fell 0.2% on a month-over-month basis in August 2020, i.e., deflation. The last month of deflation in the Eurozone before August occurred in May 2016. The last calendar year in which the US experienced deflation was 1954 or 66 years ago (source: Eurostat, Bureau of Labor Statistics).

READ ALL ABOUT IT - Jobs in the hardcopy publishing industry (i.e., newspapers, magazines, books, directories, mailing lists, calendars, greeting cards and maps) are projected to drop by 33% between 2019 and 2029, a forecasted loss of 99,200 jobs (source: Bureau of Labor Statistics).

YOU WANT A DISCOUNT? - The schools with the 4 largest college endowments in the United States – Harvard, University of Texas, Yale, and Stanford – increased the cost of tuition for their undergraduates for the 2020-21 school year (source: MarketWatch).

WHO KNEW? - The CDC estimated on 7/10/20 that 40% of Americans infected with the COVID-19 virus are asymptomatic, i.e., they never experienced symptoms commonly associated with the virus, including fever, chills, cough, shortness of breath, fatigue and body aches (source: Center for Disease Control).

SOME RELIEF - A maximum $2,500 of interest expense from student loans is deductible annually from taxable income. Please consult a tax expert for details (source: Internal Revenue Service).

NOT THEIR YEAR - The last 2 World Series champs – the Boston Red Sox (2018) and the Washington Nationals (2019) – have the 3rd worst record (the Red Sox were 16- 29) and the 6th worst record (the Nationals w ere 16-26) in MLB out of all 30 teams as of games played through Thursday 9/10/20 (source: MLB).

...and for the History Lovers... This Week in History


September 21, 1937

The women's airspeed record is set at 292 mph by American pilot Jacqueline Cochran.


September 22, 1969

Willie Mays of the San Francisco Giants becomes the first baseball player since Babe Ruth to hit 600 home runs.


September 23, 1806

The Lewis and Clark Expedition arrives back in St. Louis just over three years after its departure.


September 24, 2009

LRAD (Long Range Acoustic Device) "sonic cannon," a non-lethal device that utilizes intense sound, is used in the United States for the first time, to disperse protestors at the G20 summit in Pittsburgh, Penn.


September 25, 1974

Scientists warn that continued use of aerosol sprays will cause ozone depletion, which will lead to an increased risk of skin cancer and global weather changes.


September 26, 1914

The Federal Trade Commission is established to foster competition by preventing monopolies in business.


September 27, 1964

The Warren Commission, investigating the assassination of President John F. Kennedy, issues its report, stating its conclusion that Lee Harvey Oswald was the sole gunma


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Notable Dates in September


  • September is National Happy Cat Month


  • September 7—the first Monday in September—is Labor Day. Canadians also observe Labour Day.


  • September 8: National Hug Your Hound Day


  • September 11 is Patriot Day, held in honor and remembrance of those who died in the September 11 attacks of 2001.


  • September 13 is Grandparents Day. Honor your grandparents today—and every day!


  • September 13: Kids Take Over the Kitchen Day


  • September 17 is Constitution Day. This day celebrates the adoption of the U.S. Constitution, which occurred on September 17, 1787 (just five years prior to the founding of The Old Farmer’s Almanac, believe it or not!).


  • September 18 brings the start of Rosh Hashanah, at sundown. 


  • September 19: International Talk Like a Pirate Day


  • September 21 is recognized as the annual International Day of Peace. Observances range from a moment of silence at noon to events such as peace walks, concerts, and volunteering in the community.


  • September 22 marks the start of fall! This year’s Autumnal Equinox falls on September 22 at 9:31 A.M. EDT. At this time, there are approximately equal hours of daylight and darkness.


  • September 24: National Punctuation Day


  • September 27 is Yom Kippur, the holiest holiday in the Jewish calendar.


  • September 29 is Michaelmas. Michaelmas is an ancient Celtic “Quarter Day” which marked the end of the harvesting season and was steeped in folklore.








This Double-Apple Walnut Bread is the perfect bread for the fall season, but it can be enjoyed any time of the year. It’s easy to make and stays moist and flavorful.

Packed with fruit and walnuts, it just tastes like autumn and is a great seasonal alternative to traditional banana bread.

Served warm or cold, this apple walnut bread makes a great breakfast, snack, or dessert! For video instructions, click here.





1 cup sweetened or unsweetened applesauce

1/2 cup plus 1 tablespoon sugar, divided

1/2 cup brown sugar

2 large eggs

1/4 cup vegetable oil

1/4 cup plain or vanilla yogurt

1 teaspoon vanilla extract

2 cups all-purpose flour

1 teaspoon baking powder

1/2 teaspoon baking soda

3/4 teaspoon salt

1/2 teaspoon ground cinnamon

1/8 teaspoon ground nutmeg

1 cup peeled, cored, and finely diced apple

1/2 cup chopped walnuts





Preheat oven to 350°F. Butter a 9x5-inch loaf pan and line with parchment paper, if desired. 

In a bowl, combine applesauce, ½ cup of sugar, brown sugar, eggs, oil, yogurt, and vanilla in a bowl. Whisk to blend.

In a separate bowl, sift together flour, baking powder, baking soda, salt, cinnamon, and nutmeg. Make a well and add applesauce mixture. Stir until combined. Fold in diced apples and walnuts. Scrape batter into prepared pan and smooth the top. Sprinkle with the remaining tablespoon of sugar. 

Bake on the center oven rack for 50 to 55 minutes, or until a tester inserted into the center comes out clean. 

Transfer to a cooling rack for 10 minutes. Turn the bread out of the pan and cool thoroughly before slicing. 



Makes 1 loaf



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