While your other insurance products product your assets now, life insurance protects your family’s future. If something ever happened to you, life insurance can provide for your spouse, your children, your grandchildren, or other loved ones.
What Can You Use Life Insurance For?
People use life insurance to help with many different goals. Here are some of the most common.
- Replacing your income so that your family can maintain the same standard of living.
- Paying off your mortgage to alleviate the burden of that payment as your family adjusts.
- Guaranteeing that your children’s education will be paid for.
- Leaving a more significant legacy for your heirs.
- Paying for additional childcare or other costs that your spouse may face as they try to manage the household on their own.
- Covering final expenses.
- Paying off debts so that your creditors can’t take your estate.
What Types of Life Insurance Are There?
There are two main types of life insurance. Some insurance companies offer different products for different situations, but they are mostly a different version of the two main categories.
Term Life Insurance
Term life insurance covers you for a specific number of years. You usually buy it in multiples of five to ten years with a maximum length of 30 years. The premiums for longer terms are generally more expensive since there’s a higher chance of you needing your policy both over a longer period of time and as you age. You will often be able to renew an expiring policy, but your premiums will typically increase.
Term life insurance is best when you have very specific needs. For example, you may need coverage until your kids graduate college, you retire from work, or your spouse qualifies for Social Security.
Whole Life Insurance
Whole life insurance lasts for your entire life as long as you keep paying the premium. Your premiums stay the same for the entire length of the policy, but you will usually receive a lower premium the younger you are when you start your policy.
One of the main advantages of whole life insurance is that you can accumulate a cash value. If you have an emergency need for funds or no longer need your insurance, you can cash out all or a portion of your policy. This gives you more flexibility over time.
What’s the Difference Between Employer and Private Insurance?
There is no difference between having life insurance through your employer or a private company except for any difference between the specific policies. Just make sure your employer policy benefits you. Some employers have life insurance on their employees, but the employer is the beneficiary and uses the payout to cover the cost of hiring and training your replacement. Policies that benefit the employee are a fringe benefit, just like health insurance, paid parking, or gym memberships.
If you have to pay for the coverage yourself, know that your employer can often negotiate a better deal, but this isn’t guaranteed. You may find a better price for the same coverage elsewhere. Whether you pay for the coverage or your employer does, make sure the policy matches your needs both now and for the future.
When is the Right Time to Buy Life Insurance?
Generally speaking, the younger and healthier you are, the less you will pay for life insurance. The problem is you don’t always know how long you will need life insurance or how much coverage you need. This is one insurance product where it may make financial sense to buy more coverage than you currently need. For example, if you’re planning to start a family, you may want to lock in a low rate on more coverage than you’d require for just yourself or you and your spouse.
When Should You Review Your Life Insurance Needs?
You should review your life insurance needs any time your family situation changes. That might mean a new child or a child starting their career and no longer needing your support. It could be changing your own job or retiring. It can also be moving somewhere with a different cost of living. You should also periodically review your needs for more subtle changes. For example, maybe you’ve had no major life changes but still made lifestyle changes to either spend less or more that changes how much insurance you need to protect your lifestyle.
If you decide you need less coverage or no longer need coverage, you should weigh that decision carefully. Keep in mind that you likely won’t be able to repurchase the same coverage at the same price if you decide you need it again. If you decide you need more coverage, you can generally add it at any time, but remember that adding more later could come at an even higher cost or with the risk of not qualifying. Try to predict your future insurance needs as best as you can before you make any decisions.
Who Can Help You With Life Insurance?
Buying life insurance is much more complicated than buying something like car insurance. You’re not just picking limits and options but trying to make predictions about your future financial situation and family needs. An experienced insurance agent can help walk you through the questions that most families need to figure out.