Is Life Insurance Recommended?
Life insurance is recommended for anyone who has dependents who would be financially impacted by his or her death. Below is a guide of some factors to consider as you shop for a life insurance policy.
What Type of Policy is Recommended?
There are two main types of life insurance:
- Permanent life insurance stays in place and provides coverage for as long as the policyholder continues to make payments. Permanent life insurance also carries a cash value that can be cashed out or borrowed against if needed.
- Term life insurance is temporary and provides coverage only for a period of time, typically up to 30 years. And unlike whole life insurance, term life carries no cash value component.
Given that each type of plan varies in cost, there are different reasons that each might be recommended.
Term life insurance is generally more affordable than a whole life insurance policy because you are not paying extra for an investment component, nor will you likely be paying on the policy as long.
How Much Insurance Is Recommended?
The more life insurance coverage you buy, the more you have to pay in premiums. Buying too much coverage could lead to years of payments that are higher than what is necessary.
Of course, if you don’t buy enough life insurance, you could end up leaving a payout to your beneficiary that is insufficient for what is needed to replace your income. A licensed life insurance agent can help you determine how much insurance is enough.
How Long of a Policy Is Recommended?
As previously mentioned, you don’t necessarily need life insurance forever. Life insurance is meant to be used as an income replacement to benefit those who depend upon you financially.
But how can you be sure how long you may be depended upon? Here are three big factors to consider.
- How long before you retire?
If you have a retirement plan in place, you may not have as much of a need for a life insurance policy once you are finished working. After all, life insurance is meant to serve as a replacement for your income. And once you retire, your income will be replaced by your retirement savings, 401(k), IRA and other investments. Still, you may want a life insurance policy in place to help pay for final expenses and other costs.
- How long until the mortgage is paid off?
You use your income to pay your mortgage every month. If you were to pass away, would your spouse be able to afford mortgage payments with their income alone? Consider buying a life insurance policy that lasts as long as your mortgage.
- How long until your children are financially independent?
If you have children at home, you’ll want to make sure they are adequately taken care of if you were to pass away. It's a good idea to have a life insurance policy in place until your youngest child reaches the age of 18, if not later.
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*Applications for insurance may be subject to acceptance by insurer. Rates and coverage amounts will depend upon the carrier selected.