This is another one of those topics nobody wants to talk about but needs to talk about: Life insurance. Someone who is young and single probably doesn’t consider a life insurance policy a priority. However, once you cross the line into marriage and family, then life insurance becomes a vital asset. You’re creating a fund for your family so that they can carry on if you are no longer able to provide for them. What a wonderful final gift that will become.
As you dive into the world of life insurance policies, you’ll be presented with a lot choices. On some level, you have to project into the future to determine what your family might need from you. Here’s the basics of life insurance:
Term vs. Universal vs. Whole
Insurance policies break down to three basic categories: Term, universal or whole. Term life insurance is the most popular type of policy and the most affordable. It covers a person for a specific amount of years, usually 20 to 30. If a death occurs during the term, the benefits are paid out. Simple and easy to follow. The good news about term is that your premiums should be locked down. You’ll know what you’re paying for those 20 or 30 years. Hopefully, you’ll outlive your term and can renew your policy. At that time, the premiums may go up a bit but based on the potential return versus your overall investment it is a pretty good deal.
Universal life insurance covers you for your entire life. There is a lot of flexibility with the premium payments and there is also a tax-deferred savings account that is built up over the course of the policy. Think of this as an automatic retirement account with an insurance benefit bonus.
A whole life insurance policy also covers you for a lifetime and has the savings account component. However, the premiums are fixed at a higher rate. With the whole and universal policies, you can “cash out” within the terms of those policies.
How Much Life Insurance Do You Need?
The amount of life insurance benefits you want for your family will determine your premium payments. So, how much life insurance do you need? Start with your salary and how much of that goes to family expenses like house payments, bills and other debts. You then have to factor in things like your child’s education. If you’re not around to provide for that, then your life insurance policy payouts can. Obviously, these needs can change over time and that might mean re-evaluating your police needs.
Although there are some life insurance policies that don’t require it, most want you to take a basic physical before completing the contract. In many ways, you and the insurance company hope to never pay out on the policy. That starts with you being in good shape. Obviously, the younger you are, the lower the premium.
As with any major purchase, you should shop around to see where you can get the best quote for your needs. One thing is for sure, once that policy starts you will have peace of mind. That is priceless. Is your life covered?