If something happened to you tomorrow, how would your family cope? Nobody ever wants to think about life insurance, yet it’s one of the most responsible steps you can take as an adult. We’re here to take the mystery out of buying the right insurance policy for you.
What Is Life Insurance?
Everybody’s gotta go sometime, right? So how does life insurance work? There are two types of policies available: term life and permanent life. Term life is much more common — and affordable. Essentially, you buy a policy for a set amount of time (anywhere from 10-30 years is typical) and if you pass away in that time frame, the insurance company pays a death benefit to your surviving family.
Permanent life is a more complex and expensive proposition. In this type of policy — sometimes called whole life or universal life — the insurance company pays out regardless of whether you get in an accident the day after you buy it or if you live to be 105 years old.
Permanent life insurance builds interest over time. It also allows the beneficiary to cash out early (minus a hefty fee) or leverage the premium for a loan. As I said, it’s a complicated type of insurance, and you’ll definitely want the help of an experienced professional if you decide to buy a whole life policy.
How Does the Payout Work?
Regardless of which type of insurance you decide to buy, you’ll need to choose a beneficiary. This is the person who will receive the payment should anything happen to you. Most married people choose their spouses.
Single adults with children will typically choose one or more of their kids — but be aware that if you want to leave the money to a minor, you’ll also need to set up a trust with a legally appointed trustee to ensure that the insurance company pays up.
Who Needs Life Insurance?
The short answer is that everybody needs some kind of life insurance. But let’s look at a few different examples of people who can benefit from coverage.
Young parents should definitely get life insurance for themselves. Even if one parent is staying at home full time with the kids, don’t neglect to take out a policy on both parents and not just the primary earner. You can also purchase life insurance for your children or dependents while they are minors.
Even parents of grown kids may want some kind of term life insurance to ensure that funeral expenses aren’t a burden to their children.
Another good time to buy life insurance? Right after you buy a house. In the event that something happens to you, a life insurance policy could help cover the mortgage and prevent your family from being saddled with a major debt.
How Much Does Life Insurance Cost?
The question most people want answered is how much life insurance will cost them. If you’re buying a term or whole life policy, the insurance company will look at several factors to set a price.
Age, sex, and overall health all play a role in determining how much you’ll pay for a monthly premium. A 22-year-old non-smoking woman whose favorite hobby is knitting will pay significantly less than a 50-year-old man who goes skydiving in his spare time and eats steak for dinner every day.
The longer you wait to buy life insurance, the more it will cost you. If you’re thinking about getting coverage, the best time to do it is right now.