You probably already have life insurance through a job or privately purchased, but you may not know just how important it is for your real estate investment business. If you are investing in real estate, it’s important to know about life insurance, how it can benefit you, where to get it, and why you need it.
What is life insurance and how does it benefit a real estate investor?
This insurance provides money to loved ones when the policyholder passes away. These insurance policies range from $10,000 or less to over a $1 million. This money can be used to pay final expenses and provide money to pay living expenses for the family left behind. You may not want to think about your death, but it’s one of the two certainties of life. No one really wants to leave behind financial problems and worries for their family.
There are two major types of insurance. Whole life policies are policies that are purchased for a monthly rate that builds cash value as you make payments. The policy remains in effect as long as you make payments on time or the policy reaches maturity. Term policies are kept for a certain term. You make the payments on time and you are covered. No cash value accrues in the policy and you can end the policy at any time. While whole life policies used to be more popular, term life policies are now purchased more often because of their lower rates and better flexibility.
One specific insurance benefit that is often overlooked by investors in real estate is the ability to borrow from whole life policies. That’s correct, if you take out a whole life policy, you are accruing a cash value in that whole life policy. You can borrow from that policy to help you make deals that you might not have the capital to handle otherwise. You get insurance and access to capital.
Where do you get life insurance?
There are three different ways that you can buy a term or whole life policy. You can buy it from a local agent. While this used to be the main way that insurance was purchased just 30 years ago, it is quickly being outpaced by other ways to purchase. The first alternative way to purchase insurance is directly from the insurance company. Direct insurance companies sell term life and whole life policies directly to consumers either through their website or through the phone.
The internet gave rise to a third way to buy insurance and this is with third party quote sites. These sites are focused on finding you the cheapest insurance rate possible. They scour many different companies and give you multiple quotes from different providers so that you can choose the policy, amount, and company that you prefer. If your focus is on price and you don’t need the hand-holding of an agent then this can be a good way to buy insurance.
Why do real estate investors need life insurance?
It’s clear that investors can not only benefit from insurance, but they have a specific need for it. Your expertise is invaluable to your real estate investing. You know to manage your business and you are the one with the capital. Your loved one may not have this same prowess. They may not immediately have the capital to properly manage your business. The insurance can provide that seed capital to not only keep your real estate business going but also help it grow after you have passed away. The capital can be the glue to keep things from falling apart.
Now that you know what insurance is, the benefits for real estate investors, where to get insurance, and why you need it, it’s time to take the plunge and get a term or whole life policy quote. You’d be surprised how inexpensive it is for peace of mind.