Do you know that life insurance can be considered an important building block in the foundation of a long-term financial plan? Many people put off buying life insurance coverage longer than they should because they don’t know what life insurance does or how it works. They may also think they don’t need it or feel they can’t afford it.
What is life insurance?
Life insurance is a contract between you and an insurance company once you qualify and are accepted. It exists to help provide for your loved ones financially upon your death. You pay the premiums to the insurance company and in return, the company pays out the death benefit amount you chose to the person you designated to receive it (your beneficiary). Life insurance can be there to help your loved ones avoid financial uncertainly during one of the hardest times of their lives.
How do I know if I need life insurance?
If you are single, you are not necessarily immune from the need for life insurance. Even if you don’t have a spouse or children, you may still have final expenses to be paid. Do you own a business? Have outstanding student loans? A car payment? Remember also that a dependent isn’t necessarily a child. It could be anyone who is financially dependent on you, including an adult disabled child, a sibling, or aging parents.
If you have loved ones who depend on you for their financial wellbeing, if you have any debt, or if you want to ensure your final expenses won't burden your loved ones, you may need life insurance. If there are people in your life who will be adversely affected financially when you are no longer here, you may need life insurance.
Consider this: 73 percent of consumers leave more than $61, 500 of debt behind them when they die.1 Added to this is the fact that for nearly half of the U.S. workforce, missing more than one paycheck could be all it takes to put a family into financial hardship.2 Most of us would not intentionally put the financial wellbeing of our loved ones at risk, but without life insurance, it’s certainly possible. Those we leave behind may be left with the responsibility of paying for our final expenses plus other debt we may have accrued. Would your loved ones be able to take on your financial responsibilities? Life insurance can help ease the financial burden on your loved ones.
How much life insurance do I need?
By now, you might be thinking that maybe you really do need life insurance. Understandably, your first concern might be how much it’s going to cost. A more important concern — and one that will certainly help determine the cost — is determining how much and what type(s) of life insurance you need. Forty-five percent of consumers go online to find more information on life insurance, but complete the purchase with an agent or financial advisor.3 You don’t have to be an expert; a licensed insurance professional can help you choose products that best suit your needs and budget.
There are four basic needs loved ones typically can face upon the death of a household provider. We’ve touched on final expenses, meaning funeral and burial costs. Depending on the death benefit amount, this money may also be able to help pay outstanding medical bills you may have left or other debts you may have accrued. Life insurance may also be used to help provide income replacement for your family if you’re not around. Even if the deceased does not work outside the home, provisions will still have to be made to take care of all the services performed by that person, such as housecleaning, child care, transportation, etc. Another expense that families often face when a wage earner dies is help paying the mortgage, usually the family’s largest single expense. Finally, life insurance can be there to help provide the children with a quality education.
Can I afford it?
You could be in for a surprise; it may cost less than you think! Most Americans overestimate the cost of life insurance coverage, though the problem is more pronounced and more widespread among younger adults — 44 percent of millennials think the cost of life insurance is more than five times what it actually is.4 And, kudos to you for stepping up to this important decision now, as opposed to later because the two main factors that determine the cost of life insurance are your age and the state of your health. You aren’t getting any younger (sorry) and your health in the future is not guaranteed. Buying coverage sooner rather than later is a smart choice.
That said, if your premium amount is more than you expected or more than you can handle right now, talk to your insurance agent about it. Rather than not purchasing any life insurance at all, he may be able to make adjustments to, for example, a policy’s face amount or the term of the policy.5 You can always beef up your coverage when your financial situation improves. In any case, it’s a good idea to revisit your insurance needs with your agent periodically to make sure you have the right coverage for your current circumstances.
- Credit.com Americans Are Dying With an Average of $62K of Debt (July 13, 2020)
- MarketWatch, Millions of Americans are just one paycheck from ‘financial disaster’ (July 14, 2020)
- Insurance Information Institute, Facts + Statistics: Life Insurance (July 13, 2020)
- Life Happens, The True Cost of Life Insurance (July 7, 2020)
- Nerdwallet, 2019 Insurance Barometer Study: Nearly Half of Americans More Likely to Buy Simplified Underwritten Life Insurance (July 14, 2020)
Categories: Insurance, life insurance