Although life insurance isn’t mandatory to have, you should definitely consider it especially if you have children, a partner, or other family members that depend on your income. Be sure to keep reading to learn more about life insurance and if it is worth it for you.
Check out Haven Life to apply for and manage your policy online.
Table of Contents
- 1 How Life Insurance Works
- 2 What Isn’t Covered By Life Insurance?
- 3 How Much Is Life Insurance?
- 4 Do You Need Life Insurance?
- 5 Who Doesn’t Need Life Insurance?
- 6 When Should You Get Life Insurance?
- 7 Conclusion
How Life Insurance Works
Life insurance works by paying your dependents money, either a lump sum or regular payments, when you pass away. You can get reassurance knowing that those you love will be taken care of when you’re gone.
The coverage you purchase determines how much your dependents receive. The two main types: term life insurance and whole-of-life insurance.
Term Life Insurance
With a term life insurance, it runs for a fixed amount of time, such as 5, 10, or 20 years. Usually people buy term life insurance to cover them until they pay off their mortgage, they retire, or their children are grown.
Whole-of-Life policies pays out no matter when you die. You just have to make sure you are keeping up with your premium payments. Since there are no fixed end dates, it is usually much more expensive than term life insruance.
What Isn’t Covered By Life Insurance?
Generally, life insurance only covers death and you won’t be covered if you can’t provide for your family because of illness or disability. However, some policies offer a terminal benefit, paying out if you get a diagnosis of a terminal illness.
The majority of policies have exclusions that aren’t covered. For instance, if your death is caused by using illicit drugs or by engaging in a risky sport, you might not be covered. If you take out a policy with a predetermined health problem, your insurance may exclude any cause of death related to that illness. There is not an option to buy additional insurance products that cover critical or long-term illness and total or permanent disability.
How Much Is Life Insurance?
Many things can influence your insurance premiums such as:
- Your age
- Whether or not you smoke
- Length of policy
- Amount of coverage
If you are younger, you have a smaller chance of dying from a medical condition, which means your policy will be cheaper. You might be able to bypass the medical exam, but if you choose this route, you’ll probably have to pay higher rates.
Do You Need Life Insurance?
There are many cases where you should consider buying life insurance. If you have people that rely on your income to survive, then you should consider getting it. Relevant dependents may include children, a spouse, aging parents, or even the cosigner of a loan you took out. Here are some more common scenarios where you might feel more assured:
You Have Young Kids
If you have young kids, they will depend on your for a while, and you most likely want to start saving for their college funds and other milestones. Unless you’ve already saved enough to cover everything, you should consider taking out insurance.
You’re in a Domestic Partnership
If you have a mortgage that requires both of your salaries for payments or if one partner earns much more than the other, having life insurance will help relieve any worries.
You Have a Private Student Loan
Federal student loans are forgiven when the borrower dies, however private student loans don’t provide the same protection. The debt will transfer to whoever co-signed the loan, which is usually the parents. You should take out a policy in order to protect your parents from getting stuck with your student loans.
You Own a Business
Consider taking out a life insurance policy with your business partners as a beneficiary, along your family, especially if the business couldn’t exist without you. Furthermore, 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. You can also consult a financial advisor about estate planning.
Who Doesn’t Need Life Insurance?
There are some instances where you might not need life insurance, even if you play an important role in your family’s life. Here are a couple scenarios where you probably don’t need one:
Stay-at-home parents might not need the same kind of insurance as working parents. You might want to consider taking out a small policy to cover daycare and other costs that might arise if the stay-at-home parent passes away. This kind of insurance is smaller and shorter in length than a standard term policy.
In the best case scenario, you won’t need life insurance once you reach retirement age since you’ve already paid off your debt and your kids are on their own. When you don’t have any financial burdens, you most likely don’t need life insurance. If you want to leave an inheritance, you’ll probably stockpile more money with investments, rather than an insurance policy.
Some agents might try to sell it on your kids, however it might not be necessary. Children usually don’t earn to support their family, so they most likely won’t need life insurance.
When Should You Get Life Insurance?
When you get life insurance really depends on what’s happening in your life. Be sure to keep these things in mind:
- It 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 it at 25 is cheaper than getting it at 45, but you may not need coverage for that long. If you buy later, it could even out the cost. To put it in perspective, paying $30 a month for 20 years is the same as paying $60 per month for 10 years.
I recommend buying life insurance once someone starts to depend on your income. You should set the term for as long as you think they’ll need 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.
The majority of people will most likely need to get life insurance sometime in their life. Be sure to follow our tips and recommendations to find out if it’s worth it for you and when you should get it.