Securing your loved ones' future is a priceless reassurance, making the decision to invest in a life insurance policy a crucial one. The task of determining when and if to acquire life insurance can appear daunting, but if you're pondering whether life insurance is a worthwhile investment, the answer is often a resounding "yes."
Various inquiries arise when contemplating life insurance: "What options are available to me? What are the associated costs? How does term life differ from whole life coverage?"
In essence, acquiring life insurance is synonymous with obtaining peace of mind. In this discussion, we'll delve into the types of life insurance, its mechanics, and whether the current moment aligns with your needs for purchasing a life insurance policy.
What is life insurance?
In simple terms, life insurance serves as a replacement for lost income. These plans offer essential financial security to your family in the event of your passing. When you acquire a policy, you pay regular premiums to your provider, who commits to disbursing a predetermined amount, known as the death benefit, to your dependents upon your demise. A dependable life insurance plan plays a pivotal role in ensuring your loved ones' enduring financial well-being. Knowing that coverages like final expense insurance or lost income coverage are available can offer further reassurance. By safeguarding their financial stability with a life insurance policy, you ensure your loved ones will be cared for. There are two primary types of life insurance:
Overview of term vs. whole
Term life insurance is a policy that provides coverage for a specified period, typically ranging from one to 30 years. If you pass away during this coverage term, the insurance company pays a death benefit to your named beneficiaries. However, if you outlive the policy, there is no payout, and the coverage expires.
Whole life insurance, the second type we'll discuss, is a more intricate form of insurance and is usually pricier. It offers permanent coverage while also accumulating a cash value over time. Part of each premium payment contributes to this savings component known as the "cash value."
Depending on your specific policy and provider, you may have the option to withdraw from or borrow against these funds in certain situations. Whole life insurance is the most prevalent type and provides lifelong coverage as long as you consistently pay premiums on time.
Younger is better
You may be fortunate enough to be at a point in your life where you’re young and healthy, but that doesn’t mean it’s not worth it to look ahead. For example, taking out a life insurance policy earlier in life can let you lock in better rates for the long term. Additionally, if you own property together with another adult, a life insurance policy can help them keep up rent or mortgage payments in the event of your passing.
Reasons you need life insurance (even at a young age)
Even if you are young and healthy, life insurance may be smart move. Here are some of the reasons you may need life insurance:
You’re going to have a baby
If your income disappeared, your minor children, who are unable to support themselves, would most likely be put at a severe disadvantage. The same is true if they will rely on you to help pay for their education or offer disability support.
You’re getting married
If you’re creating a life with your partner and they rely on your salary to pay for things like household spending, losing your income contributions could be disastrous for them.
You support your parents financially
If you are providing for an aging parent, life insurance can help your loved ones find new sources of assistance if you pass away.
You have private student loan debt
Your debts do not simply vanish when you pass away. People tasked with settling your estate’s debt who didn’t follow probate laws, co-signers on a loan, joint owners or account holders, spouses in community property states like California and Texas, and people tasked with settling your estate’s debt who didn’t follow probate laws could all be on the hook to pay your debts.
You work for yourself
If you work for yourself, you’ll need to consider the consequences of your death if you have a business partner or staff. To keep things running, you could take up a life insurance policy with your company partner as the beneficiary.
You have a high-risk job
You have a higher risk of mortality if you work in a dangerous or high-risk environment than if you sit at a desk all day. A larger premium is usually paid for in jobs like aviation, construction, firefighting, mining, oil and natural gas, and a few other fields.
You have extreme hobbies
If you’re a thrill seeker who loves extreme sports, a life insurance company will most likely consider you a higher-risk customer. However, it’s similar to having a high-risk job: you’ll pay more for insurance, but the expense is justified given your risk of dying from unnatural causes.
Who doesn’t need life insurance?
You can probably avoid buying a life insurance policy if no one in your life would be financially impacted by your death. For the time being, you may find that saving and investing in other assets — such as stocks, bonds, retirement funds, or real estate — is a better option.
Keep in mind that your life insurance coverage will be more reasonable if you are younger and healthier. If you anticipate significant life changes, it may be worthwhile to consider your options in order to lock in competitive pricing.
Should young people buy term or whole life insurance?
Term life insurance is, in general, the cheaper and more flexible alternative, and thus the preferable choice for the majority of people. You can customize term life insurance to cover the years of your life when your death would have the greatest impact on your loved ones, and then review the policy when they can sustain themselves without your life insurance.
How much life insurance should I get?
Of course your own financial security should be factored in when buying life insurance. While life insurance is a worthwhile investment, it’s important to remember that you will likely have monthly payments on your policy. The amount of life insurance you purchase will have a direct impact on the amount of your premium payments.
When considering purchasing a term life insurance policy or whole life insurance, consider who is financially dependent on you, and what is your medical history, your life expectancy. In the matter of an untimely death, what will happen with your outstanding debts? Which policy can accumulate cash? How much of a death benefit amount would provide the financial protection you and your family need.
Online insurance calculators, like this one from NerdWallet, are a wonderful place to start when shopping for coverage. They’ll ask you questions about your lifestyle and requirements to help you figure out how much coverage you need.
You can also calculate how much life insurance you need manually with a few simple steps:
- Multiply your annual income by the number of years you want the insurance to cover.
- Add any fixed expenses (like kids’ college tuition).
- Finally, subtract any non-retirement savings or investments you have that could cover some of these costs in lieu of an insurance benefit.
Should I use group life insurance through my job?
As a benefit, many employers provide free life insurance. Basic group life insurance policies are sometimes referred to as employer-provided life insurance policies. Coverage is almost always guaranteed, which means you won’t have to undergo a medical exam or answer any health-related questions to be eligible.
There’s no reason not to accept a basic life insurance policy because it’s free and often provides guaranteed coverage. All you have to do is sign up, and enrollment may be automatic in some cases.
What is supplemental life insurance?
Supplemental life insurance is a type of insurance that offers an extra layer of protection to an existing policy. Supplemental insurance is coverage that you buy in addition to your primary policy. Often known as employee-paid or voluntary life insurance, supplemental life insurance is typically purchased from your company. It can help assist with financial matters, and can be used as an additional death benefit. Private insurers can also provide coverage
Now that your life insurance questions have been resolved, we can help you with your non-life insurance needs! Check out all of the great products we offer. Contact us or get a quote today.