Personal life insurance can be used to protect both you and your family in the event of your death, but not everyone needs it. Learn more about personal life insurance, how it works, and whether or not you need to get some in this comprehensive guide.
Why Buy Life Insurance
A life insurance policy, simply put, is a contract between you and an insurance company. Your premiums pay for protection in case something happens to you. Depending on your policy, it can cover your funeral expenses (burial or cremation), money for family support if you die unexpectedly, as well as lost income. If you have children who depend on your income or any debt that needs to be repaid upon death, purchasing a personal life insurance policy may be a good idea; however, unless there’s a specific reason that makes your family depends on your income — such as large credit card debt or private student loans — term life insurance usually isn’t needed . . . not to mention it’s fairly expensive.
Types of policies
There are three main types of personal life insurance policies: term, whole life, and universal life. Each has different features and benefits. Term policies are designed to provide a death benefit in exchange for a one-time premium. If you choose a policy with a 20-year term, for example, you will pay that one premium in full at that time, but no premiums after that date. Your benefit will be paid out if you die during those 20 years (if you’re healthy), but if you live longer than expected, your coverage ends automatically.
The upside of term insurance is its affordability; it’s usually much cheaper than other options. The downside is that there is no cash value accumulation over time—the money you put into it only pays out when you die. Whole life policies have both an investment component and a death benefit component, so they combine aspects of both term and universal life policies. They also come with cash value accumulation over time, which can be used as collateral for loans or borrowed against in emergencies.
Things To Consider Before You Buy
Though you may not think about it much, life insurance is a product that every single adult needs. Though you might think your spouse or partner will always be there to take care of you, that isn’t always a safe assumption. Without life insurance, your family could lose everything if anything were to happen to you. 1 in 3 families can’t pay their expenses when someone dies without an income replacement benefit like life insurance. To help ensure financial security for your family.
Young adults don’t usually need life insurance because they have many years ahead of them to earn money and support their families. However, if you have dependents (like children) who rely on your income today, then you should consider getting some coverage. For example, say you have three kids under age 10 who rely on your income—you should probably get enough coverage so that they would receive at least $50,000 per year until they reach age 18. If one parent died today leaving no other source of income behind, how long would it take for those kids to become self-sufficient?
Is It Possible To Die Without It?
If you have a spouse or dependent children, personal life insurance can be a crucial safeguard in your overall financial plan. If you die suddenly or unexpectedly, would they still be able to pay their monthly bills without your income? This type of insurance protects their assets, which could prevent them from losing everything they’ve worked for. In addition to protecting those you care about most financially, it can also provide emotional support through an important time in their lives. For example, if you pass away before your child graduates high school, that coverage could help pay for his or her education until he or she graduates.
If You Decide To Get It, Where Should You Get It From?
The answer to where you should get life insurance depends on your personal needs, as well as your current situation. If you have a family to support or dependents who will be negatively impacted if you were to die prematurely, they must be taken care of if something were to happen. If they do not have any means of living without your financial contributions, you need some sort of life insurance policy. It might also make sense for you to get some sort of life insurance policy even if there aren’t any people who would suffer financially in case something happens to you.
How Much Do You Need?
Generally, life insurance will pay out a lump sum to your family after you die. This can be extremely helpful in paying off medical bills or other expenses incurred in your absence. But, how much do you need? The answer depends on many factors, including your existing debt load, an expected income of those left behind, and future financial goals. There are no hard-and-fast rules when it comes to buying life insurance but generally speaking, $500k should cover most people’s needs for many years.
However, if you have children who will be going to college soon, it might make sense to purchase more coverage. If you have significant debt (e.g., student loans), then more coverage may also make sense. And if there are specific things that your family would like to accomplish together (e.g., travel), then additional coverage may also make sense so that they can still pursue these dreams without having to worry about money while doing so.