Let’s face it, Life insurance is something no one gets excited about, except the insurance salesperson. It can be very expensive, and you aren’t buying something flashy or something you can have fun in. You are spending your hard earned money on something you will never get to enjoy.
On the flip side, if you are married, especially with children, life insurance is necessary. Although no one is planning on passing away, you don’t want your family to be affected financially by your death.
When Do You Need Life Insurance?
If your family could not live the same lifestyle they are currently living if something were to happen to you, then you need life insurance.
How much Life Insurance Do You Need?
The rule of thumb is to have 10 times your annual earnings in life insurance death benefits, after taxes. This assumes the death benefit is invested into a vehicle that will essentially double over 10 years, thus, being able to provide for your family forever.
I would highly suggest everyone, no matter marital status, have enough life insurance death benefit, after taxes, to easily cover their debts and to give them a proper funeral.
Be sure to discuss life insurance needs, not only with your advisor, but also your spouse.
When Do You No Longer Need Life Insurance?
Although many salesmen will try to convince you that you need life insurance until age 100, this is simply not the case. Basically, if you have a spouse or children that depend on your salary coming in to live, then you need life insurance. But, if you have saved plenty in retirement accounts, have little debt, and do not have dependents, then I would suggest saving your money. There is a point where your savings can replace a life insurance death benefit, and at that point, life insurance is no longer needed.
Types of Life Insurance
Life insurance can be broken down into two categories; whole life and term life insurance. Whole life provides you with life insurance until you’re “legally dead” at age 100. This insurance usually costs 10 time more than other policies, but it has its benefits. Whole life insurance generates cash value over the years. This cash value grows alongside the insurance company and can be used to supplement your retirement. Before purchasing a whole life policy, be sure to fully understand the instrument.
The other category of life insurance is term life. Term life is purchased in given terms, such as 30 years. If you purchase a 30-year term policy, you will pay your life premiums for thirty years, thus, having coverage for that amount of time. These policies are much cheaper than whole life, but do not build a cash value. Also, after the term is up, you have to re-apply for life insurance at an older age, making the premiums higher on the new policy.
Life insurance is one of those things you pay for, but you hope you never have to use it. It is hard spending money on something you will never see, but your family will appreciate it if something were to happen to you.