When was the last time you reviewed your life insurance policy? Do you even own one? In this article, the first of a two-part series called Life Insurance 101, we look at some basic life insurance information and how it applies to you.
Life Insurance Basic Information
What are the basic principles of life insurance? And do you really need it? A life insurance policy is a type of coverage purchased from a life insurance company. You pay the company a premium over the years, and in return, the company promises to pay a person you designate a financial sum when you die.
Fifty-two percent of the U.S. population have life insurance, and even those folks question if they are adequately covered. But for many, life insurance isn’t on the list of things on which to spend money. We investigate why people do not buy it and who are good candidates for it.
Rationale for Not Purchasing Life Insurance
People don’t purchase life insurance for a number of reasons. Some of these are:
● I’m young and healthy. People in their twenties may think they don’t need life insurance because they aren’t married, don’t have children, and don’t own a home. However, because you are young and healthy, you have access to lower premiums and easy approval for coverage. Another advantage of buying one when you are young is that you can accumulate cash value that you can use in retirement.
● It’s too expensive. There are many different types of life insurance policies out there, and one is sure to fit your needs and your budget. If money is tight right now, think how much tighter it will be if you should die and leave loved ones without your income. On average, for a healthy 40-year-old person to purchase life insurance, it costs $26 a month. It could be worth the peace of mind to forego a few coffee shop lattes and spend that money on life insurance instead.
● It’s an employee benefit. Some companies include group term life insurance in the new employee benefit package. These policies usually provide minimal coverage and don’t build cash value. Also, should you leave your place of work or get laid off, these policies will not follow you to your next job.
● I don’t want to think about death. To be blunt, everyone will die. For some, it may come unexpectedly in the prime of their lives, and for others, it will be after a long life. No one knows when their time will come. But ignoring our own mortality and procrastinating on preparing for it doesn’t mean it won’t happen. Your avoidance of the issue may leave those you care for in dire straits.
Who Needs Life Insurance?
Do you need a life insurance policy? How do you know? Here are some characteristics of people who are good candidates:
● Business owners. Life insurance is an important part of your company’s business plan. In the event of your death, this money can be used to give your heirs or business partners the capital needed to continue on or sell the business. It’s important to have a buy-sell agreement for your business.
● Co-owners of property. If you and a spouse, fiancé, life partner, business partner, or relative own property together, having a life insurance policy is a good idea. In the event of one of the co-owners passing away, the beneficiary can use the money from the life insurance to help pay the mortgage, taxes, and upkeep on the property.
● Married couples. A life insurance payout provides the surviving spouse with a financial benefit. The loss of your income could leave your spouse short of money to pay the mortgage, bills, debt, or funeral expenses. This payout protects the surviving spouse from potential financial adversity. Understanding estate tax and inheritance tax and how they can affect your beneficiaries is an important consideration for you and your spouse.
● Those with minor children. Whether you are married or not, if you have minor children that rely on your financial support, they can benefit from your life insurance policy once you die. Childcare expenses, basic living costs, and educational fees can all become a burden to the child and their primary caregiver in your absence.
● People with other dependents. You may have adults who depend on you for their economic well-being. Life insurance can help secure financial provisions and care for your adult children with special needs or your elderly parents with health challenges.
● Singles who want to build cash value. Singles or couples can purchase specific types of life insurance policies that help build up cash over time. This extra way to save can provide additional funds to tap into when needed.
● Young adults with student loan debt. If your parents have cosigned a loan for your college educational expenses, having a life insurance policy is a wise idea, even at your young age. Monthly premiums are fairly cheap and will protect your loan cosigners in the event of your untimely death. As your beneficiaries, your parents will be able to pay off whatever is owed on your student loan rather than being on the hook for it. The current average student loan debt per person is $28,950.
Final Thoughts
Life insurance basics don’t have to be a mystery. While there are many reasons why people don’t sign up, most adults are good candidates for a life insurance policy. In the next part of this two part series, we will examine the different types of policies and the coverage they provide.
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