No one likes to think about it, but we all know we’ll die someday. We also know no matter how many kale smoothies we choke down, the chances of us passing on before our children run fairly high. Why is it, then, so many people have difficulty talking about life insurance? Life insurance is a valuable financial planning tool which can ensure your family has the resources they need to recover emotionally from your death without encountering serious economic hardship. The right coverage ensures you have the peace of mind knowing if an accident claims your life tomorrow, your family can pay for your funeral and take time off work to mourn. Finally, if you have younger children, the right coverage can launch their college education and future career. Here’s what you need to know about life insurance, so you can make the best decision for you and your family.
Why Invest in Life Insurance?
If you’re young and healthy, there’s no better time to purchase life insurance coverage. Insurance companies use actuarial tables to determine your policy rates, and the younger you are, the less likely you will die. The earlier you first purchase insurance, the lower your rates regardless of whether you opt for a term or permanent life policy, and if you choose the latter, the more time you’ll have to vest. Other factors than age impacting your rates include your habits. If you are a smoker, expect to pay more regardless of the type of policy you choose. The same goes if you’re significantly overweight for your height or have high cholesterol or other health concerns. However, don’t wait until you improve your habits to cover your family. Accidents are called such because they happen without warning — it hardly matters if you plan on quitting tobacco tomorrow if you cross paths with death today. Finally, your lifestyle determines your rates and whether you can get coverage at all. Who can forget the scene in “Along Came Polly” where the base-jumping executive applies for a life insurance policy? Expect to pay more if professional skydiver is part of your job description.
Types of Life Insurance Policies
Two types of insurance exist — term and permanent. A term policy bases your rates upon the likelihood of you dying in a specified period of time. One advantage of such policies is they provide a way for young people to afford coverage. For example, many young mothers stay home when their children are little — investing in a term policy may allow her spouse to stay with the children in the event something occurs. It’s difficult to put a price tag on this level of continuity of care while grieving. However, many couples newly embarking on their lives lack hundreds per month for a permanent policy. Permanent life insurance, whole being the most common type, does not expire, provides tax advantages and allows you to borrow against the principal or surrender the policy for cash. One advantage of such a policy is earnings are guaranteed to grow at a specified rate. Qualifying for a permanent policy proves trickier and requires a health exam, and while your premiums remain the same over the course of your lifetime, the monthly fees exceed those of term policies. Some policies do include stocks as part of the growth factor, but dividends are not guaranteed. One alternative young women and couples have when purchasing life insurance is opting for a combination of term and permanent policies. This way, you can insure a combination of your needs and wants without breaking the bank. Life insurance needs include income replacement — 78% of workers live paycheck to paycheck, meaning the loss of one income can devastate family economics quickly. They also include things like the cost of paying off a mortgage or paying for a child’s college education. Wants include things like creating a nest egg you can pass down to your children in case they develop an illness later in life rendering them uninsurable. It also can include helping your family avoid downsizing and maintaining their current lifestyle in the event of your death. Because most term policies cover your life insurance needs, you can use additional money you earn monthly to invest in a permanent plan. Even though your employer may offer coverage, it’s a good idea to secure your own policy. Young workers aged 25-32 leave their jobs every 3.2 years, meaning their coverage ends when they switch. Given how much less expensive it is to insure yourself while you’re young, buying a policy then simply makes good financial sense.
Making the Right Choice to Protect Your Loved Ones
Whichever type or combination of policies you choose, it’s well past time to end the silence and stigma surrounding life insurance. These policies offer a way to protect your family in the event the unfortunate occurs. Accidents and illnesses can strike anytime — protecting your loved ones, while you still enjoy good health, makes economic sense.