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When to Get Life Insurance
27 Jun 2020

When to Get Life Insurance: The Important Things to Know

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Not everyone needs life insurance throughout the entirety of their lives.

However, there comes a time in almost every individual’s life, especially parents, when it makes sense to have a life insurance policy.

Being young and healthy doesn’t protect you from the unknown.

Things like catastrophes and unexpected medical circumstances can be both mentally and monetarily detrimental to loved ones if there is no life insurance policy in place to protect them.

Plus, life insurance isn’t always expensive. The average cost for a non-smoking 35-year-old is less than $360 per year. That’s less than $30/month.

But knowing when to get life insurance isn’t cut and dry.

If you’d like to learn more and understand when you shouldn’t hesitate to get life insurance, keep reading!

Editor’s note: If you like this article, feel free to join the conversation and leave your comments at the bottom!
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What Is Life Insurance?

Life insurance is similar to medical insurance, auto insurance, and all the other insurance policies you should have.

For every policy, you pay a premium every month to an insurer.

The contract dictates that, in exchange for the premium, the insurer will pay out a specific sum of money to a designated beneficiary upon the death of the insured individual.

Many people opt to get life insurance through their employers. Some employers offer basic coverage at no cost with the option for additional coverage at a higher premium.

Many companies offer life insurance, so if you don’t get it from your employer, it’s in your best interest to shop around for the best rates and terms.

What Are the Different Types of Life Insurance?

There are quite a few types of life insurance, but they can all be broken down into a few main categories.

Most people refer to the 2 basic types as term and whole.

Term Life Insurance

Term life insurance is simple. You pay your premium every month for the death benefit. Paying your premium guarantees that a death benefit goes to your beneficiaries should you pass away.

The benefit itself can be paid out monthly, yearly, or as a lump sum, though most people opt for the lump sum.

Term life insurance is more affordable compared to other types of insurance as it only lasts until the end of its term, which can last up to 30 years.

For around $30 to $40 per month, a healthy person in their 20s or 30s can sign up for a $500,000 policy.

Whole Life Insurance

Whole life insurance offers a death benefit and a cash value.

The way it works is that every month, a certain percentage of your premium goes into a tax-deferred savings account. This account is called the cash value of the policy, which grows over time.

Because of this extra feature, a whole life insurance policy can cost significantly more than a term life policy, even if they offer the same death benefit.

As long as you pay the premiums, whole life insurance continues to last.

It can make things more complicated because you’ll have to consider things like taxes, surrender fees, and interest.

But, if you need the cash value to pay for things like estate plans or endowments, it might be the better option.

While term life insurance only covers you up until the end of a specified term, permanent life insurance covers you for as long as you continue to pay premiums.

With that in mind, whole life insurance is a type of permanent life insurance.

What Other Types of Insurance Are There?

Most people opt to sign up for term life insurance. That being said, there are quite a few different types of insurance that lend themselves to various circumstances.

Universal Life Insurance

With universal life insurance, you can change your death benefit amounts and premium without having to change policies.

You can also use your cash value to pay your premium any month if your cash value has the available funds.

Variable Life insurance

Variable life insurance is different than whole life insurance because the cash value is dependent on the market. While the fees can be lower, the product can be riskier.

Variable Universal Life Insurance

Just like variable life insurance, variable universal life is a little more complicated. You can change your death benefit amount or premium at any time.

However, it’s not the best value for an investment as the cash value is still dependent on the market.

Final Expense Insurance

Final expense insurance provides a way to cover funeral costs, even if you passed on guaranteed issue life insurance. This type of insurance only pertains to people of a certain age and promises to cover ALL costs associated with death.

Guaranteed Issue Life Insurance

With guaranteed issue life insurance, you don’t have to pass a health exam or answer any questions about your health. The insurer will cover you regardless.

When Should You Get Life Insurance?

If you’re wondering “why have life insurance,” here are some examples of when it’s a good idea to enroll.

There Are People Who Depend on You

If you’re a parent with young children, don’t hesitate to get life insurance. If anything were to happen to you, you’d be able to rest assured knowing that your spouse and kids are taken care of.

If you’re a single parent, you should also get life insurance so that your kids will be taken care of should something happen. That money could be used for childcare and other expenses if a family member takes over caring for your children.

Even if you’re divorced, the costs could help cover child support and other expenses, should the worst happen and you pass away.

You Have a Mortgage

A life insurance policy can help to cover mortgage payments so that your family doesn’t have to move, should something happen to you.

You can set up your term life insurance to match the years of a mortgage.

You Want to Provide an Inheritance

If you don’t have a lot of wealth or much to leave behind, taking out a life insurance policy is an excellent way to ensure that you leave something behind for those you love and care about.

You’re a Business Owner

Opting to sign up and pay for life insurance can help pay off your business debts and help your heirs pay off estate taxes.

It could also be used to fund a buy/sell agreement.

And even though you should set aside tax payments every quarter, if your business owes taxes, your policy could cover that too.

You Want to Make Sure Your Funeral Is Paid For

The average funeral costs $7,000 – $12,000, but they can cost a lot more. Life insurance can make sure that your funeral costs are covered.

You Have Co-Signed Debt

If you have a debt that someone co-signed, their credit is dependent on how consistent you are with payments.

Plus, they’re responsible for the remainder of the debt, should you pass away. Enrolling in a life insurance policy is a smart way to make sure your co-signer isn’t held responsible for what you owe.

How Do You Know What Type of Life Insurance to Purchase?

Life insurance provides many different ways for people to protect themselves and their loved ones, even after they die.

What type of life insurance is best for you is dependent on a variety of factors in your life.

It’s essential to discuss your options with your insurer or company representative before you enroll in a plan. If you’re purchasing outside of work, do your research before settling on a plan.

Every individual is different. A parent with a special needs child or a spouse they care for would be wise to buy permanent life insurance as that would ensure that the child has financial support regardless of when the parent passes away.

Permanent life insurance is also a good option for someone who desires to leave behind an inheritance or someone with a high net worth.

If you want to make sure that your kids are covered until they reach adulthood, a term life insurance plan can be set up to cover your kids during those particular years.

Term life insurance is another feasible option for a divorced parent who wants to cover upcoming years of child support payments.

When Don’t You Need Life Insurance?

There are some circumstances in which there is a decreased need for a life insurance plan, such as:

  • Your kids are self-sufficient
  • You and your partner have enough assets and income to care for yourselves independently
  • Your estate isn’t big enough to owe taxes
  • You’re single and without dependents

Because you can get a basic life insurance plan for not that much money, even if you don’t feel it’s entirely necessary, there’s nothing to say you shouldn’t get one.

And if you do have young children, a mortgage, or another crucial reason to acquire life insurance, don’t wait too long to do so.

Knowing When to Get Life Insurance Is Essential

Being prepared for the worst can seem like an arbitrary concept until you start thinking about when to get life insurance.

If you have a mortgage, a business, small children, or want to leave behind an inheritance, you’ll have peace of mind once you enroll in a life insurance policy.

Knowing that you, your loved ones, your business, and your responsibilities are taken care of should you pass away is an integral part of being an adult.

Are you also looking to improve your financial situation to get out of debt and vow not to leave any behind?

We can be your one-stop-shop for all your financial needs. Take a look at the resources we offer, and find out how we can help today!