What Should You Know About Life Insurance?
Life insurance can seem like an intimidating topic if you don’t know much about it. Many people wonder how life insurance works, what kind of life insurance to get, and how much to buy. But getting the right amount of life insurance coverage is important, not only so that your family will be able to continue their lives without financial strain after you’re gone, but also because life insurance helps pay your final expenses, including funeral costs and paying off any debts you leave behind.
What is term life insurance
Term life insurance is one of two main types of life insurance coverage. In a nutshell, term life offers protection for a certain period of time—the term—and then expires. Term policies typically have lower monthly premiums than other types of life insurance, but don’t provide permanent protection or build equity. It's also important to note that if you pass away during your term period, your beneficiary will only receive benefits for a specified time (usually 10 to 20 years). Term life can be a good option if you have financial dependents who would benefit from lump-sum payout in case something happens to you. It may also make sense if you are looking for coverage on an immediate and temporary basis.
Who should get it
Most people don’t realize how important life insurance is. It’s designed to help your family if you pass away, whether it be from a freak accident or a long-term illness. However, in order to qualify for coverage, you must answer a set of questions regarding your health and family situation. The questions are different depending on what type of policy you get, but even healthy individuals can take time going through them. If you have any pre-existing conditions or dependents who would depend on your income should something happen to you, then consider getting life insurance to make sure your loved ones are taken care of after you’re gone.
How much do you need
There’s no one-size-fits-all answer to how much life insurance you need. Some people have a lot of debts, others are looking after their family’s future, and others still have children that depend on them for support. At some point in your life, you could find yourself in all three of these scenarios. Understanding your needs (and wants) is an important first step to figuring out how much life insurance you should buy and what kind is best for you. To figure out what coverage level you need, look at your assets—what would they be worth if your spouse didn’t work? How long could your family last without any income?
Can you change your coverage amount later
You can always change your life insurance coverage amount or type later. Check with your insurer, but they should allow you to make changes for free within a certain time period. For example, some carriers will allow you to purchase additional coverage for free for up to 60 days after purchase. Others might require you to wait 30 days from your last premium payment date before changing your policy. The point is that life insurance policies are very flexible and it’s important to know what options are available at any given time in case of a death in your family or financial change of some kind—this way, you can avoid being stuck with inadequate coverage later on down the road.
Which type of policy is right for you?
When should you buy it
Many people think they should have a life insurance policy in place by age 30, or when they start a family. If you own a home or have other debts that can be paid off only by your death, it’s time to consider life insurance sooner than later. The best way to decide when you should buy life insurance is to look at how dependent your financial situation is on you and how much debt (like student loans) there will be if you were no longer around. At what point would it become too much for your family or friends to take care of on their own? That’s when it’s time for life insurance, according to Don Browning with GEICO. It’s about being prepared, he says.
Discounts are good, right?
Term vs. whole life
Before buying a life insurance policy, it’s important to understand what you’re getting into. There are two main types of policies: term and whole life. With a term policy, coverage lasts for a specific amount of time—typically 20 or 30 years—and is renewable if you choose to do so. A whole life policy covers you for your entire lifetime but can be quite expensive. If your goal is to build assets and provide a safety net for yourself or your family, then whole life might be right for you.
A few things to watch out for
Don’t sign up for coverage that you don’t need. Many people opt for more life insurance than they actually need, which can cost you extra money down the line in higher premiums and unnecessary fees. Be sure to get advice from a professional financial advisor who can review your entire portfolio to see what options are best for you.