Life Insurance is Like a Security Blanket for Your Loved Ones.
Life insurance provides ready money to the people who depend on your paycheck, should you pass away. It can help to:
- Pay for funeral expenses and medical bills
- Cover monthly bills, such as a car payment, rent or mortgage
- Pay off outstanding debt, including student loans or credit card bills
- Offset childcare costs if you're a stay-at-home parent or a parent who must enter the workforce
- Fund a child's future education
- Provide an inheritance for your children or a retirement account for your partner
Think of life insurance like a security blanket that can help financially protect the people you love most.
How Does Life Insurance Work?
A life insurance policy is a protective contract between you (the insured) and an insurer (the life insurance company). In the event of your passing, the life insurance company pays your beneficiary (a person or organization that you choose) a set amount of money (benefit amount).
You can name any person or organization that you'd like as your beneficiary — and you can even name more than one. That's good news for parents who have more than one child and don't want to play favorites.
The amount your beneficiary (or beneficiaries) will receive is determined by the amount of coverage you chose to purchase. Best of all, your beneficiary will receive the benefit amount income tax-free, according to current laws.
Do I Need Life Insurance?
Some people wait for a major life event to buy life insurance — a wedding, a new home, or a newborn. But the most important thing about life insurance is buying it before you need it.
It's not exclusively for those who are married or have children either. If anyone is dependent on you financially, such as an aging parent, life insurance is a must. Not sure if you need it? See if you fit into any of the following categories:
- You're married
- You have a domestic partner
- You have a spouse and kids
- You're the primary breadwinner
- You're single with kids
- You have a home
- You own your business
- You have student loan debt
- You're retired
If this sounds like you, it may be time to buy life insurance.
When Should I Buy Life Insurance?
It's never too early or too late in life to buy life insurance. The sooner you buy it, however, the less expensive it might be. Why? Your age and health history are two of the factors that determine the cost of your premium rate (the amount you pay for your policy).
What better time to purchase your first life insurance policy than when you're young and healthy?
The type of life insurance policy you may need will depend on your unique situation, including your stage of life.
What Type of Life Insurance Do I Need?
We all have different financial responsibilities. So, no one type of life insurance coverage is inherently better than another. What's most important is finding the solution that works best for your personal financial situation.
There are two main types of life insurance policies to consider: term and whole life insurance.
Term life insurance offers protection for a set period of time, or a "term." As the policyholder, you can choose your term, typically between 10 to 30 years. It's often the less expensive of the two options, as term life insurance policies come with an expiration date. Once that term ends, so does your coverage. It's best for those who have greater coverage needs for a certain period of time, such as while your family is still growing.
Whole life insurance, on the other hand, lasts for a lifetime. With each payment you make, a portion of it is set aside for a rainy day, which becomes your policy's "cash value." If your car breaks down or you have an unforeseen medical expense, you can borrow against your policy's cash value, often at a favorable rate.
Another reason people are often drawn to whole life insurance is the fixed premium rate. Your premium rate is locked in so that, even if your health status changes, the amount you pay for life insurance will always stay the same. For parents, that means you'll be paying the same rate when you're holding your first grandchild as you did when you held your first child.
One common type of whole life insurance policy is Guaranteed Issue Whole Life Insurance. It's designed for those ages 50-85, who want to apply for life insurance without answering health questions or taking a medical exam. So you get the coverage you need, without the hassle you don't.
How Much Does Life Insurance Cost?
The price you pay for life insurance is determined by a number of factors, including your selected policy type and coverage amount.
Some of the other factors that influence your premium include:
- Health status
- Driving record
If you're in the habit of jumping out of a perfectly good airplane, for example, your premium rate might be higher than someone who watches Netflix on the weekends.
For this reason, when you apply for life insurance, you'll likely be asked a series of questions about your medical history and lifestyle. In some instances, a medical exam may also be required.
With your newfound understanding of life insurance, you can explore the options for life insurance policies or use this information as an icebreaker at your next social gathering.