Do I need life insurance? Or am I wasting my money?
The answer to that question is, it depends. In many cases, life insurance should be a key part of your families financial plan.
Life insurance can help to provide MONEY for your family or company when its needed most. It can help by providing a cash death benefit to pay off large debts and being able to pay for ongoing living expenses, in a case of the unexpected.
Life Insurance can also protect savings and assets that you’ve worked hard to build over time.
Who Needs Life Insurance? Do I need Life Insurance?
Individuals, Families, and Businesses need life insurance.
Many individuals, couples, and business professionals need the protection that life insurance coverage can provide. While many life insurance companies – and insurance agents – will place a key focus on providing coverage for those who are a family breadwinner, there is a long list of others who can also benefit from this type of coverage.
In fact, without life insurance, many people could be leaving their families and/or business associates at financial risk.
Just some of the people who should consider having life insurance include the following:
If you and your spouse or partner both earn an income, it could put the survivor in a financial bind if one person’s income was lost. For example, in many instances, getting a home mortgage will be based on both of the individuals’ incomes. So, losing one of these income streams could mean that the surviving spouse or partner will need to move to a lower-cost residence if they can no longer afford the mortgage payment. But the proceeds from a life insurance policy can be used to pay off the balance of the mortgage, as well as for a long list of other primary financial needs.
Stay at Home Moms / Dads
Although placing life insurance coverage on the life of an income earner is important, it is equally necessary for stay-at-home parents to have coverage.
This is because the cost to replace his or her duties could be extremely high. As an example, a stay-at-home parent will oftentimes have the role of primary childcare provider, as well as performing other duties, as well, such as cooking, cleaning, doing laundry, and driving carpool.
In fact, a study by Salary.com revealed that the average stay-at-home mom in the United States works more than 96 hours each week and that it would require more than $115,000 per year to replace all of the duties that they take on.
Life insurance can do just that.
Seniors should also consider having life insurance coverage. There are several reasons for this.
For instance, when a senior passes away, he or she could leave their spouse without ongoing retirement income. There are many types of pension and retirement income sources that will decrease, or even go away altogether, when an individual dies.
This could be detrimental to the well-being of a spouse or partner who was also using that income stream to survive. Life insurance policy proceeds can help to replace this lost income stream for a survivor.
There are also many seniors who have final expense life insurance coverage.
These types of life insurance policies, which are also often referred to as funeral or burial insurance, will typically provide between $5,000 and $25,000 in proceeds so that the insured’s funeral and other final expenses can be paid.
Today, with the average cost of a funeral running at approximately $7,000 to $10,000, having these proceeds already in place means that loved ones won’t have to take on these expenses during an already difficult time in their lives.
For those who are a business owner, partner, or executive, life insurance should also be considered.
This is because the loss of a key person could affect a company financially. Life insurance can provide the funds that are necessary to keep the business afloat while is it being sold or transferred.
While nobody ever wants to think about the unexpected happening to a child, the unfortunate truth is that illnesses and accidents can – and often do – happen.
Should this be the case, a child’s family could be faced with a number of unanticipated expenses, such as the cost of a funeral, as well as uninsured medical costs that may occur. The proceeds from a life insurance policy can be used to pay some or all of these expenses, which can allow family members to focus on what is important, without the additional financial stress.
Children could also benefit by having a permanent life insurance policy that builds up tax-deferred cash value within the policy. This is because this type of policy can be used for college planning and/or other financial goals in the future.
Why Do I Need Life Insurance?
So your family does not have to beg on Facebook to contribute to a GoFundMe account, that is one reason.
There can be any number of reasons why someone would need life insurance coverage – even if you don’t currently have someone who is counting on you financially. In fact, regardless of your age, health condition, or your stage in life, it is likely that you may need at least some amount of life insurance coverage.
So you may be asking, then, how much life insurance do I really need?
How much life insurance do I need? The amount of life insurance that anyone really needs will be dependent on several factors. These include how much it would take to replace your income (if applicable), as well as the estimated amount of debt that your loved ones may need to pay off if the unexpected occurred.
If you are a business owner, there are other criteria to keep in mind, too, such as how long – and how much – it would take to replace you if you were no longer a part of the company.
Although there are several different “rules of thumb” in terms of how much life insurance you need – such as simply multiplying your annual salary by certain number – the reality is that there is not a one-size-fits-all way of figuring out how much life insurance coverage is enough. This is because everyone’s situation and needs are different and unique.
With that in mind, it is best to discuss your specific situation with an insurance professional who can provide you with much more accurate figures. Doing so can help you to better ensure that if the unthinkable were to occur, those that you care about won’t have to suffer financially.
Do I Need Whole Life Insurance or Term Life Insurance?
Once you have determined the how much life insurance you need, it is also important to narrow down what type of life insurance coverage you need. While there are many different types of life insurance policies to choose from today, there are two primary categories. These are term and permanent.
Term life insurance provides pure death benefit protection only, without any cash value or savings build up. It is considered to be the most basic type of life insurance protection, and because of that, many people are able to secure a high amount of term life insurance coverage at a low cost. This is particularly the case for those who are younger and in good health.
Term life insurance, as its name implies, is purchased for a certain amount of time, or “term.” These terms can include one year, five years, ten years, twenty years, or even thirty years. Typically, with a level term life insurance policy, the amount of the death benefit and the amount of the premium will remain fixed. And, there are many term life insurance policies that can be converted over to a more permanent form of life insurance coverage – often without the insured having to take a medical exam in order to qualify.
Permanent life insurance coverage also offers death benefit protection, as a cash value component. The money that is inside of the policy’s cash value area is allowed to grow on a tax-deferred basis. This means that there are no taxes due on the gain each year unless or until the funds are withdrawn. This tax-advantaged nature of permanent life insurance can provide the opportunity for the cash value to grow and compound exponentially over time.
The most basic type of permanent life insurance is whole life. With a whole life insurance policy, the cash value will grow at a set interest rate that is determined by the insurance company.
Whole life is intended to last for the remainder of the insured’s lifetime – or the “whole” of his or her life – provided that the premium is paid. So, there is no time limit on the coverage with whole life. In addition, the amount of the premium with whole life insurance will remain the same – regardless of whether the insured contracts an adverse health condition in the future.
The funds that are in the cash value component of a whole life insurance policy can be withdrawn or borrowed by the policyholder and used for any type of need or want. This can include paying off debts, supplementing retirement income, purchasing a new vehicle, or even for taking a nice vacation.
If the funds are borrowed from a whole life insurance policy’s cash value, they can be accessed tax-free – and, although the policy loan will incur interest, the rate that is charged is often less than what is charged by a bank or other lender. (It is important to note that, if a policy loan is not repaid at the time of the insured’s death, the amount of the unpaid balance will be taken out of the death benefit that is paid to the named beneficiary).
Do I Need Whole Life Insurance?
The question of whether to purchase whole life or term life insurance coverage will depend on your particular needs. While all situations are different, overall you may be a good candidate for a whole life insurance policy if you are looking for lifelong coverage at a set premium price. You may also want to lean more towards a whole life insurance policy if you are seeking a way to build up savings in a tax-advantaged way.
Likewise, because the premium on a whole life insurance policy – as well as the amount of the death benefit – will typically remain the same, you may also want to consider whole life insurance if you want to “lock in” life insurance protection for the long term.
How Much Term Life Insurance Do I Need?
While whole life insurance can provide a number of advantages, there are some people who may benefit more from term life insurance coverage. For example, because the premiums that are charged for term life insurance are typically lower than those of a comparable whole life policy – with all other factors being equal – term life can provide you with a way to obtain an ample amount of death benefit for a low premium cost.
Also, because term life insurance is considered to be “temporary” protection, this form of coverage can also be a good choice if you want to insure against specific needs, such as the balance of a 15- or 30-year mortgage.
When is the Best Time to Buy Life Insurance?
Having life insurance means that those who you care about won’t have to face financial hardship if the unexpected happens. Because nobody knows what the future holds, the best time to buy is now.
There are several key factors that a life insurance company’s underwriters will look for when they are reviewing an applicant for coverage. These include age and health condition. So generally, those who apply when they are younger and in good health will typically be able to secure an ample amount of coverage at an affordable premium rate.
If, however, you have certain health issues, it does not mean that you will have to forgo getting the coverage that life insurance can provide. Because there are also certain types of policies that do not require a medical examination – or even the answering of a long list of health-related questions – you could still be able to obtain the coverage that you need.
What To Look for When Shopping for Life Insurance
Life insurance policies can have many moving parts – so it is important to ensure that you understand what you need (and don’t need) in the policy you purchase. With that in mind, when you need life insurance, there are several criteria to look for before you make your ultimate purchase decision. These include factors that have to do with both the policy you are considering, as well as with the insurance company that you are purchasing the coverage from.
For instance, it is important to ensure that the underlying insurance carrier is strong and stable financially and that it has a positive reputation for paying out its claims. One way to obtain this information is to review the ratings that a company has received from the insurer rating agencies. These agencies include A.M. Best, S&P, Moody’s, and Fitch.
Insurance companies are graded by these agencies in terms of their overall financial strength, as well as a host of other key factors. In this case, it is usually best to stick with good quality insurers that have grades of A or better.
You will also want to compare life insurance premium quotes. In this case, while cheaper does not necessarily infer better, you may find that the premiums that are charged by different insurance companies can differ quite a bit – even for the very same type and the amount of life insurance coverage.
Therefore, you should be sure to compare several insurance companies’ quotes before you move forward with the purchase of a life insurance policy. The best way to do this is to work with an independent insurance agency or broker that has access to multiple insurance carriers, rather than going from one individual insurance company to another.
Where to Look for the Best Life Insurance Coverage and Quotes?
If you’ve answered the question of, Do I need life insurance? and you have determined that you do need coverage, then it’s time to take the next step. This includes working with an independent life insurance broker or agency that can provide you with unbiased information on multiple life insurance policies and quotes. This can allow you the ability to quickly and easily compare the coverage that is available to you, and from there to choose the protection that you require.
We can help you in your life insurance policy and quote comparison. We work with more than 40 of the top life insurance carriers in the industry today, so when you’re ready to move forward, for the details that you need for making the best life insurance coverage decision.
In walking you through all of the important information, you’ll have a clearer understanding of exactly how life insurance coverage works – and how it can work for you and those you care about.