Although it’s not a pleasant topic to discuss, death is inevitable. That’s why it’s important to consider life insurance: to make sure that in the case something unpleasant happens to you, your family is financially supported and secure.
Life insurance is not completely necessary for everyone. In some cases you should get life insurance. If you have children, a partner, or any family members who depend on your income to cover living expenses, then you’ll want to look into getting life insurance. Read more to see if you’ll need to get life insurance.
How Life Insurance Works
Life insurance provides financial protection for the families of either in the case the insured party dies or in a certain time frame. If you have anyone who relies on your income, life insurance allows you to still provide for them after death.
In order to have this insurance, you pay a monthly premium. If you die while the policy is still active, the insurance company will pay the death benefit to your inheritor.
There are many different types of life insurance. A life insurance policy is a unilateral contract, so as long as you pay the monthly premiums, the insurance company is committed to uphold the contract. However, if you stop paying that premium, then the policy will just end with no death benefit payout.
Term Life Insurance
A term life insurance policy runs for a fixed period of time, such as 5, 10 or 20 years. This type of insurance is usually bought to cover someone until their mortgage is paid off, they retire, or their children are grown.
Whole-of-Life Insurance
Whole-of-Life insurance pays out no matter when you die, as long as you stay on top of your premium payments. Because whole life policies do not have fixed end dates, they end up being much more expensive than its term life counterpart.
What Isn’t Covered By Life Insurance?
Life insurance typically only covers death. Unfortunately, you won’t be covered if you’re unable to provide for your family due to disability or illness. It’s not always standard but some policies may offer a terminal benefit, paying out on diagnosis of a terminal illness.
Most life insurance policies come with exclusions and things that they will not cover. For example, you may not be covered if your death involves illicit drug use. Or in the case you take out a policy with a predetermined health problem, your insurance may exclude any cause of death related to that illness. You do have the option to buy additional insurance products which will cover critical or long-term illness and total or permanent disability.
How Much Is Life Insurance?
Your insurance premiums will depend on a number of things, including:
- Age
- Health
- Lifestyle
- Whether or not you smoke
- Length of policy
- Amount of coverage
The younger you are, the less likely you’ll die from a medical condition. As a result, your insurance will be cheaper. We recommend bypassing the medical exam. In the case you choose to take a medical exam, you’ll probably have to pay higher rates.
Do You Need Life Insurance?
There are a number of different scenarios where I’d recommend buying life insurance. Basically, if you have anyone relying on your income for their financial well-being, then you should get life insurance.
Examples of dependents include children, a spouse, aging parents, or even the cosigner of a loan you took out. Common scenarios where you might feel more assured with life insurance include:
You Have Young Kids
You children depend on you to cover living expenses for a long time. Typically, you’ll want to get life insurance to make sure that your children are covered once you’re gone.
You’re in a Domestic Partnership
If you’re in a domestic partnership then you will most likely want to get life insurance. In this case, you will probably have a mortgage that requires both your salaries for payment or maybe one partner earn much more than the other. Either way, a life insurance policy makes sure you’re covered.
You Have a Private Student Loan
Despite the fact that student loans are forgiven when the borrower dies, private student loans don’t offer the same protection. This debt will be transferred over to whoever co-signed the loan, which is usually the parents. To protect your family from getting stuck with the burdens your student loans, you’ll want to take out a life insurance policy.
You Own a Business
In the case that you own a business, you may consider taking out a life insurance policy that lists your business partners as beneficiary, along side to your family. This is especially important in circumstances were the business may cease to exist without you. You can also stipulate a buy-sell agreement, providing funds for your business partners to buy out your remaining shares from your family.
You’re Super Rich
If you are leaving behind enough money to trigger estate taxes, you’ll want to use a cash-value life insurance policy to foot the tax bill. In addition, you can consult a financial advisor about estate planning as opposed to taking out life insurance.
Who Doesn’t Need Life Insurance?
Just because you play an important role in your family’s life, does not mean you need life insurance. Here are a few scenarios where you most likely will not need life insurance:
Stay-At-Home Parents
Since life insurance takes the place of your earning power, stay-at-home parents don’t require the same kind of life insurance as working parents. Instead, you may consider taking out a small policy to cover daycare and other costs that might be incurred if the stay-at-home parent is no longer there. This kind of insurance is smaller and shorter in length than a standard term policy.
Retirees
Once you reach retirement age, chances are life insurance will not be necessary. At this point in time, you have hopefully paid off your debts, your children are independent, and there are no dangers of someone else dealing with your financial burdens once you’re gone. If you want to leave an inheritance, you’ll probably stockpile more money with investments, rather than a life insurance policy.
Children
Even though some agents try to sell life insurance on kids, we do not recommend it. Children don’t normally earn and support the family, so in most cases, they don’t need life insurance.
When Should You Get Life Insurance?
This depends on what’s going on in your life. It’s important to keep these things in mind:
- Buying life insurance gets more expensive as you age: Each year that you wait, expect your premiums to go up 8% to 10%. However, once your policy is in place, your rate won’t budge.
- Holding life insurance too long is costly: Buying life insurance at 25 is cheaper than getting it at 45, but this long period of coverage might be unnecessary. If you buy later, it could even out the costs that you would’ve incurred in the earlier time period. To put it in perspective, paying $30 a month for 20 years is the same as paying $60 per month for 10 years.
We recommend purchasing life insurance when someone starts to depend on your income, and set the term for as long as you think they’ll have to rely on you. By following these criteria, you won’t spend before you have to, but you’ll also lock in the cheapest rate possible.
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Bottom Line
In the end, your death will assist in managing financial risks to your family and loved ones if they depend on your income. It is important to take some time to fully understand life insurance and what is covered before you get yourself into it. A good option to look at is Haven Life.
If you’re interesting saving money, we’ve composed a list of other ways to Save Money that you can check out. Also if you would like to see all the latest bank deals nationwide, be sure to view our full list of Bank Bonuses and find one in your area!
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