Life insurance is a contract where an insurer offers to pay a fixed fee following the death of a covered person, provided the payments are completed on time. This sum is referred to as a death benefit. Policies provide insured people with peace of mind, knowing that loved ones will have some financial assistance if they pass away.
There are two types of life insurance: whole life and term life. Whole life insurance covers you for the rest of your life as long as you pay your premiums. In contrast, term life insurance has coverage over a certain period. Depending on your age and how long you need coverage, you can opt for a 20-year or 30-year scheme.
Do You Need to Purchase Life Insurance
While life insurance can be a valuable financial tool, it is not for everybody. Keep in mind that life insurance would not cover all eventualities. A standard life insurance policy, for example, would not pay disability payments or reimburse long-term health care expenses if you become sick.
These are some of the categories of people that should consider getting life insurance.
Parents
The USDA reports that raising a child minus college tuition costs about $234,000. During the growth and development of your child, unfortunate circumstances like your passing are hard to predict but could be devastating. One way to mitigate this disaster is by ensuring that your children have financial support to lead the life you planned for them. Find out about life insurance for parents here.
Married Couples
For most people, no priority comes close to the person we choose to spend our lives with. If we pass away, most of us hope that our partners have a good financial standing to cushion them through the pain. Ideally, both partners in a marriage should have life insurance which accounts for expenses, debts, and future financial plans. Here are some things to know about life insurance for married couples.
Breadwinners
Losing a loved one is a terrible experience, but it can be even more challenging when it is the breadwinner. As the primary earner of your household, life insurance can help your family with income replacement if they lose you. You may opt for a term policy to provide coverage during your peak earning years.
Homeowners
If you pass on, your family will be saddled with the responsibility of paying the mortgage. Homeowners need a life insurance policy that can cover, at the very least, the length of time it would take to complete mortgage payments.
Retirees
Retiring is a daunting prospect for many. Asides from the lifestyle adjustments that come with not chasing career goals, there are changes in income. A whole life insurance policy can assist with these final expenses and offer loved ones peace of mind, knowing that you can fend for yourself.
Students
It is the sad reality that student debt may not disappear even if you pass away. Your parents, cosigners, or another family member may have to cover it when you go. Getting life insurance will help them with this.
Business Owners
Businesses are not just money-generating enterprises, they are also a legacy. To ensure that your business persists after you pass, consider taking life insurance. This would help keep it running if something happened to you.
Caretakers
If you have family members or older relatives who depend on you, what happens to them in the event of a tragedy befalling you? Coverage would go a long way in taking care of them in the event of such.
Divorced Parents
A term policy makes sense in this situation since it can cover the years when child support is to be paid.
Stay-at-Home Parents
Even if you are not an income earner, that does not negate the value you provide your home. Salary.com reports that stay-at-home parents contribute about $162,000 yearly when you convert their efforts into currency. Life insurance here would ease the burden on a partner that has to pay for what you contribute freely in the event of death.
When Should I Get Life Insurance?
Life insurance premiums increase with your age, implying that early application would give you the lowest rates. On top of that, some milestones should have you reevaluating your policy or whether to make a first-time purchase. They include:
- Marriage
- Having a child
- Obtaining significant loan
- Starting a business
- Retirement planning
- End of life arrangements
What If I Already Have Coverage Through Work?
Your company may have life insurance coverage for you. However, the policy can only be a fraction of the security you require. Employer-sponsored insurance usually provides benefits equal to or 1 to 2 times your gross income. According to financial analysts, you should have coverage equal to approximately ten times your annual earnings.
If you depend entirely on your work-provided insurance, this difference will result in a significant deficiency in coverage, which is why many people purchase individual term insurance to support their work-provided coverage.
Further Info
Please view our podcast episode devoted entirely to life insurance:
