Life insurance
Life insurance comes in many forms. Why is it important for you and your family? What are the benefits of having an end of life plan and properly insuring my family? When is the right time to do so? What are the costs of having or NOT having? How much do I need for my family?
Life Insurance has an unfortunate negative connotation. That’s because it is insurance for your family when YOU pass away. Life, in general, has two certainties…birth and death.
You can’t prepare for your birth, however, you can prepare for your death.
What types of life insurance are there and what does it cover?
According to our friends at LifeHappens.org, here’s what life insurance should help cover for you and your family:
Immediate expenses such as:
- Funeral and burial costs
- Uncovered Medical Expenses
- Mortgage, Rent or other Housing Expenses
- Car Loans
- Credit Card Debt
- Taxes
- Estate Settlement Costs
Ongoing Expenses for Your Family:
- Food
- Housing
- Utilities
- Transportation
- Health Care and Insurance Costs
- Continuation of a Family Business
Future Costs:
- College Education and Expenses
- Retirement
Here are the types of Life Insurance available (Note: Products and Carriers may vary by state):
Term life insurance
Term life insurance provides protection for a specific period of time (the term). This is often 10, 20 or 30 years. Term life insurance makes sense when you need protection for a specific amount of time--for instance, until your kids graduate from college or your mortgage is paid off.
Term life insurance typically offers the most amount of coverage for the lowest initial premium. This makes this type of life insurance policy a good choice for those on a tighter budget.
Permanent life insurance
Permanent life insurance provides lifelong protection for as long as you pay the premiums. It also accumulates cash value on a tax-deferred basis, which you can tap into to buy a home, supplement your retirement income, cover an emergency expense and more.
Because of these additional benefits, initial premiums are higher than what you’d pay for a term life insurance policy with the same amount of coverage.
You Might Want a Mix
Depending on your circumstances and financial goals, sometimes a combination of term and permanent insurance is the answer.
How much Life Insurance will I need?
The amount of life insurance to buy depends on who you want to protect financially and for how long. Take these three (3) areas into consideration:
1. Add up the immediate, ongoing and future expenses your family or loved ones would incur if you were to pass away.
That could mean everything from funeral costs to rent or mortgage to college tuition.
2. Add up the financial resources your loved ones already have.
That could mean a spouse’s income and life insurance that’s already in place.
3. Subtract your financial resources from the anticipated expenses.
The difference between the two numbers is the approximate life insurance to buy.
As an easy rule of thumb, financial experts recommend having life insurance that equals between 10 to 15 times your gross income. However, many people need even more than that.
To find out how much you need for you and your family, use this Life Insurance Calculator to assess your needs:
What is the average cost of life insurance?
The average life insurance cost is a tricky thing to pin down because it depends on several different factors. The most important ones that go into the price of life insurance include:
- Your age: The price of life insurance increases the older you are.
- Your health: People in good physical health generally pay less than those who have high blood pressure, diabetes or other health conditions.
- If you smoke: Smokers usually pay more than nonsmokers.
- Your hobbies: You’ll likely pay more for a policy if you engage in dangerous hobbies like skydiving.
- Your gender: Because women on average tend to live longer than men, they generally pay less for life insurance.
- The type of policy you buy: Term life insurance costs less than permanent life insurance for two reasons: it doesn’t have a savings plan component and it only covers you for a set amount of time rather than your whole life.
- Your coverage level and term: The price goes up the more you increase the coverage level and the length of the term.
That said, don’t let your age or health status discourage you from considering life insurance. There are policies available for people of any age as well as those with high blood pressure, diabetes and a smoking habit. (Just know that you’ll generally pay more for your policy if you’re in poor health and/or smoke.)