Getting married? You need a marriage license. Having a child? You buy a car seat for your infant. Leaving the country? Better make sure that passport is up to date. There are so many milestones that require a definitive moment to take action.
Life insurance doesn’t work like that. When you get married or have kids, while people may recommend it, there’s no one telling you that you “must” buy it once you reach a certain stage of your life. (Unless you have a financial planner.) Which is why, in the hustle and bustle of a crazy busy life, it can be all too easy to put the purchase aside for “some day.” And that can be a mistake.
There’s usually a question that lingers when you’re going through the researching and buying process: Is life insurance really worth it? If you’ve reached the point where a spouse, children, or family member relies on you financially, then the answer is pretty simple: It’s absolutely worth it.
Here, what you need to know about life insurance, how it works, how to buy it, and how it can help financially protect your family in case of a worst case scenario.
Why is life insurance necessary?
You have to approach life insurance like you would any aspect of your life that poses a risk and ask yourself, “What’s the worst case scenario?”
If you’re on the fence about buying coverage, then consider how your family might fare if you were no longer around. How would they keep up with day-to-day bills? Or, how would your spouse afford childcare or education expenses?
Most people would agree that, without a financial cushion from life insurance, their family might face a dire money situation. That’s why term life insurance is so valuable. It’s an affordable way to protect the people you love most financially.
Life insurance helps provide financial security if you were to die suddenly so that your family won’t struggle to cover day-to-day expenses. It can help:
- Replace lost income and cover living expenses, like rent or a mortgage
- Spare your family from needing to pay off debts you leave behind
- Provide for your kids’ care if you are a stay-at-home parent
- Cover burial, estate taxes and other final expenses
- Fund college expenses
- Cover unpaid medical bills or taxes
- Create an inheritance or supplemental retirement fund through an income tax-free death benefit
Your family’s savings shouldn’t be depleted to cover those expenses.
Even if you’re living the single life with no spouse or kids, term life insurance may still be necessary. It can help protect your parents or other co-signers from needing to pay off the mortgage, student debt, credit card debt, or even a car loan that you leave behind.
However, for most people, life insurance becomes necessary when you get married and have a spouse and children who rely on your income.
How term life insurance works
Term life insurance is one of the simplest (in a good way) and most affordable types of life insurance. It insures your life for a period of time of your choosing, such as until your mortgage is paid in full or your kids are adults. This helps ensure that none of your financial obligations will burden your family if you were to die unexpectedly during the term length.
Most insurers offer term lengths of 10, 15, 20, 25, and 30 years. You make (in the case of Haven Term policy owners) monthly payments for the policy term, and in the event of your death, the policy pays out a death benefit to your beneficiaries.
If you are young and have many working years ahead of you, a long-term policy (30 years) might make more sense. If you have small children, the same is true. Perhaps you want your term length to end around the time your home mortgage or student debt is paid off — in that case a shorter term length might make sense to protect your co-signers from needing to take over loan repayment before it’s paid in full by you.
Determining which term length you need is actually very easy. You can use an online life insurance calculator to receive a recommendation on a coverage amount and term length that best fits your financial situation.
How much does term life insurance cost?
Many people don’t realize how affordable term life insurance can be. It usually offers ample coverage at a much lower premium amount than many other types of life insurance.
A recent report from LIMRA found that many adults overestimate the cost of life insurance. Just how much exactly? The median guess was $600 per year or $50 per month for a 20-year, $250,000 policy on a healthy 30-year-old.
That’s over 4 times more than a policy would actually cost. A 20-year, $250,000 Haven Term policy for a healthy 30-year-old woman would cost about $12 per month. That’s less than your online TV streaming services.
And even if you’re slightly older, you can get affordable coverage to protect your family. A thirty-six-year-old man in excellent health can buy a 20-year, $750,000 policy for as little as $31 per month, for example.
Your individual rates will depend on a range of factors including your age and your overall health. If you’re curious how much (or little) your premiums might be, you can get a free estimate online.
Why term life insurance instead of other types?
There are many types of life insurance policies. If you’re looking for a policy that offers more than $100,000 in coverage, term life insurance is usually the most affordable choice.
Another type of life insurance coverage that offers high death benefit amounts if permanent life insurance, but it’s usually far more costly. For example, a $500,000 whole life insurance policy for a healthy 35-year-old male would likely cost more than $500 per month, compared to $21 per month for a no exam term life insurance policy.
The price difference can be attributed to the fact that permanent life insurance policies cover you for a lifetime versus a term length. They also have a cash value component that you can borrow from over time – although, borrowing from the policy cash value can reduce the total death benefit for your family.
Overall, term life insurance is a simple and affordable life insurance option. It has no investment components to track, and no cash value or loans that impact the final payout. You simply make the monthly payment, and you’re covered for the specified term length. Term life also requires only minimal maintenance – just a review of your financial needs periodically – like when you have another child or if your income increases considerably from when you first took out the policy (a good problem to have.)
In addition to affordability, term life is a product you can build on. If you start out with just $100,000 in term life insurance coverage when you’re young, for example, you’re not stuck with that coverage amount forever. Provided your health allows you to qualify for more coverage, you can continue adding term life policies as your lifestyle and situation changes. As we mentioned already, having another child might give you a reason to buy more term life insurance coverage. Earning more money over time or advancing in your career is another smart reason to buy additional term coverage to replace your income upon your death.
Employer-provided life insurance is usually not enough
Many people assume that if they have life insurance through work, they’re set. Usually, employer-provided life insurance is not worth it if you are paying for coverage.
The fact is that most people don’t have enough term life insurance through their employer if they are married, have kids, or hold significant debt like a mortgage. Typically, employer-provided policies only cover, at most, two to three times your income, while the often-recommended amount is at least six to ten times.
Another important consideration is that coverage usually ends when you leave your job, which could leave your family without coverage. Your best option is to hold an individual policy to ensure you have enough coverage and to lock in an affordable rate while you’re young and healthy.
Keep in mind, it’s perfectly acceptable to have an individual term policy on top of the coverage offered by your employer. More coverage means more protection for your family. However, when many people realize they need additional coverage, they usually think it would be easier to add on more coverage to their existing work policy. Employer-provided policies are at group coverage rates, which means insurers charge everyone the same amount of money. If you’re young and healthy, you’ll likely be paying significantly more for coverage than if you were to receive an individual rate because you’re making up for the risk insurers take on some of the older, less healthy people at your company.
No matter what your employer offers, it’s worth it to carry your own coverage that keeps you covered no matter where you work.
Understanding your needs
Term life insurance isn’t a complex financial product and is a necessary part of financial protection. What’s most important is that you understand what your coverage needs may be and if you do need coverage, make sure you’re not putting off the purchase.
Like we mention above, term life insurance (and most life and health insurance for that matter) is more affordable when you’re young and healthy. The earlier you buy your term policy, the better your rates. So the time to comparison-shop and act is now. Given its low cost and high value, a term life policy that fits your coverage needs is clearly worth it. Picture the alternative: dying without a policy and the potential for leaving your family with a huge financial burden. That’s a high cost to pay.
Five steps to buying life insurance
If you’re someone who is unsure of where to begin, consider these steps as you search for the right amount of coverage to protect your family.
Step 1: Fill out a life insurance calculator.
The best way to get a general idea of how much life insurance coverage you need is to toy around with a life insurance calculator. By entering details like your age, income, overall health, and family status, you can find out how much term life insurance coverage is suggested for your family and compare quotes to top insurers. Check out our free term life insurance calculator.
Step 2: Ask yourself if you want additional coverage for any reason.
Our life insurance calculator can guide you to the average amount of coverage you’ll need based on the information you provide, but it’s possible you have other, personal factors to consider as well. Maybe your goal is buying enough coverage to leave behind a legacy for your children, or to financially care for an elderly parent or relative. Either way, you can and should buy whatever level of coverage will help you sleep better at night.
Step 3: Pick a process.
There are two main ways to buy a policy: through an agent or buying life insurance online. We’re partial to online, because it allows you to get covered immediately and on your own time. Also, because it’s what we offer. If you’re comfortable shopping and banking online, this is probably the best choice for you.
Step 4: Check the rating of the provider.
A company such as A.M. Best does the homework on an insurer’s claims-paying ability and record, to help determine whether the provider is considered reliable and in good financial standing. We’d recommend providers rated A+ or better. Our Haven Term policy is issued by MassMutual, an A++ rated insurer.*
Step 5: Get the coverage you need.
Once you’ve decided how much coverage you need, how you want to purchase it and from which insurer, it’s time to get covered. There’s no reason to delay buying life insurance because it’s now easier than ever with thorough and simple online services. And the peace of mind is absolutely worth it.
This article was originally published at Haven Life