- Life insurance has a number of pros and cons to consider before you commit to purchasing it
As you navigate your life, you have many decisions to make, like whether you want to get married, have kids, where you want to work — and the list goes on. Life is full of ups and downs, and you want to make sure you and your family for any surprises.
One thing you may consider is whether to get life insurance. It’s something you hear adults talking about all the time or may hear about on commercials, but do you really need it? Sure, you know that it covers your life in some way, but there’s more to life insurance than putting a price on your life.
Life insurance forces you to think about circumstances that you don’t want to happen but that you should prepare for — what happens to your loved ones when you pass away? There are so many options for life insurance, and it can be challenging to thoroughly grasp its ins and outs.
Fortunately, this guide will help you solve all of your life insurance questions. Here is what you need to know about life insurance to make an informed decision regarding a policy for you.
What Is Life Insurance?
First of all, you need to know what life insurance is. It’s a type of contract between you and the insurance company. You agree to pay a certain amount of money, called a premium. In return, the insurance company guarantees that a beneficiary will receive that money when you pass away. It ensures that the money you put into it goes to a specific person to help them cover debts or other funeral costs.
Typically, the beneficiary is a spouse. However, there can be multiple beneficiaries. You might name your spouse as the primary receiver of the money. However, if your spouse were to pass away, that money can go to secondary beneficiaries, like a child or a sibling.
Types of Life Insurance
There are two types of life insurance — temporary and permanent. Here are some basic facts about both:
Temporary life insurance is better known as term insurance. You can get policies issued for a certain amount of time determined by you. It still pays the beneficiary a death benefit if you die during the term. However, if you are still alive by the time the insurance term is up, the policy no longer has any value.
Permanent life insurance is, well, permanent. It covers you for your entire life. As long as the policy is still active when you die, the beneficiary receives the payment. Plus, permanent policies build value over time.
Why Do People Get Life Insurance?
People get life insurance for many reasons. Here are some reasons why you might want to consider getting life insurance:
1. Paying Off Debt
Whether you still have student loans, a mortgage or other debts, the money you put into life insurance can help pay those off. Life insurance takes off some of the financial burdens that you may leave when you pass away.
2. Replacing Your Income
Leaving behind a spouse and young children can leave them with a financial burden. An income that was once there isn’t there anymore. Life insurance can cover that for you so your family can continue to pay bills and keep their standard of living. Life insurance can significantly reduce the stress of leaving your family in a bind like this.
3. Covering the Costs of a Funeral
Funerals are expensive. One of the main reasons why people get life insurance is to cover the cost of a funeral and other expenses that go along with that.
Pros and Cons of Getting Life Insurance
Now that you have a better understanding of life insurance, you can determine the pros and cons of getting life insurance.
Here are the advantages of getting life insurance:
- Family Protection: Many people choose to get life insurance so their families will have financial protection, especially if they rely on you for an income.
- Inexpensive: Depending on age and coverage, life insurance can be affordable.
- Peace of Mind: Death is an unexpected event, so if something were to happen to you, you have peace of mind for your family’s finances.
- Price Rises As You Age: The older you get, the more expensive life insurance can be since you’re more at risk.
- You Can Easily Be Misinformed: As you can see, there’s a lot of information that comes with life insurance, so it can be unclear for you to get the right kind of insurance.
- Permanent Life Insurance Gets Expensive: Term life insurance is less expensive than permanent. Since it lasts your whole life, the cost doesn’t depend on your age or health.
Cost of Life Insurance
The cost of life insurance is determined by how much you put into it. You could put a few dollars in each month, or you could put in hundreds of dollars. Insurance companies usually offer payment plans to make it affordable, though.
Life insurance costs are based on several different factors, including:
- Medical conditions
- Whether the life insurance policy is permanent or temporary
- How much you want to put into the death benefit
Based on these factors, you can better determine your life insurance cost. The younger and healthier you are, the less costly it will be.
Live Life to the Fullest
Life insurance is an excellent investment if you want financial peace for your family. Understanding the basics of life insurance will help you make a better decision about what kind of life insurance to get. Although it can be a difficult topic to discuss, it will help you live life to the fullest now without worrying about the future.