The goal of life insurance is to provide a measure of financial security to your loved ones should you die. In its simplest form, it’s a tool to protect against the loss of income. Not everyone needs life insurance and maybe you are trying to decide if you should purchase or not.
Are there people in your life that would be negatively impacted financially if you died? This would mean a significant other, children, or family members who depend on your income to live.
The 5 main types of people who need life insurance:
- The Spouse
- The Stay-at-Home Parent
- The Small Business Owner
- The Borrower of a Co-Signed Loan
- The Young and Healthy Planners
Many people think “I don’t have children yet, so I don’t need life insurance.” Sure, you don’t have children that you take care of, but what about your significant other? If you died tomorrow, would your spouse struggle with all bills now left in their care? Your significant other will be emotionally and physically devastated from your loss; do not leave them financially devastated as well.
The Stay-at-Home Parent
Stay-at-home parents do the job of multiple people combined. If you were to suddenly die, your spouse would quickly be in over their head trying to make up for everything you did at home. Having life insurance can afford the remaining spouse to take time off work to get everything situated and help pay for services the stay-at-home parent provided.
The Small Business Owner
If you died, would the business crumble? A life insurance policy can work to fund a buy-sell agreement. This is a contract among the owners to buy a deceased owner’s share of the business at an agreed upon price in the event of death, disability, or retirement. With this agreement, your partners won’t be scrambling to figure out a way to keep the business afloat and your beneficiaries will still be compensated as well.
The Borrower of a Co-Signed Loan
Do you have any debt? Did you co-sign a loan with anyone? Do you have any shared credit card accounts? If you answered yes to any of these and don’t want to saddle your loved ones with your remaining balance, then life insurance could help you.
Example: If your parents helped you through college by co-signing your student loans, then anything you didn’t pay off goes to them if you died. Benefits from a life insurance policy would go toward your debt, paying it off so your mom doesn’t have to.
The Young and Healthy Planners
Your age and health play a large role in determining policy premiums. Essentially, the younger you are the cheaper it is so you may consider getting life insurance sooner rather than later.
Example: If you are a newlywed 29-year-old and plan on starting a family soon now may be the perfect time to get life insurance. It would cost less than one dollar a day and it would ensure your spouse and future children are protected.
According to a study by LIMRA, 85 percent of those surveyed say most people should have life insurance, yet only 62 percent do. Of those 85 percent, 86 percent haven’t bought life insurance because they think it is too expensive. This is where term insurance comes in. A 40-year-old non-smoking female can get a $500,000 life insurance policy for 20 years of coverage at only $26 a month. If something were to happen unexpectedly, her family would be protected.
How Much and for How Long?
The rule of thumb is that you should have enough life insurance to cover 10 times your annual income, but this is an estimate and is not right for everyone.
Example: A single, childless man with an annual income of $75,000 does not need the same amount of coverage as a married father of three with the same income.
If you have loved ones who depend on your income you will want to get enough coverage to allow them to live their lives as planned despite your absence, you also want enough to cover your final expenses (funeral/burial), and cover your debt.
Determining the term length can seem like guesswork, but it’s easy to narrow down. If you are getting term insurance to make sure your loved ones are protected from your debt then you only need to get enough to cover it as you pay it off.
Example: If you have a mortgage but believe it will be paid off in 10 years then a 20-year term policy would be unnecessary.
Example: If you are getting term insurance to ensure your four-year-old child can go to college, set the term length for 20 years so their education would still be covered if something happened to you.
Life insurance is essential for most people. No one ever anticipates needing to use life insurance, but the unexpected does happen. Besides, it’s probably cheaper than you think and there are great places to get free online term life insurance quotes that are quick and easy. This is one thing that you may wish you didn’t put off until tomorrow.