It’s unfortunate that so many people don’t consider life insurance to be very important.
Life insurance doesn’t seem important until it becomes necessary, and then it becomes critical!
That’s because you can’t buy life insurance after the fact.
What’s almost ironic is that life insurance is generally one of the least expensive types of coverage you can have, at least when you buy term life insurance. And though most people don’t give it much thought, it’s actually the most necessary.
Why You Need Life Insurance
We usually tend to think of life insurance in terms of providing a death benefit that will help support our loved ones after we die. That’s one purpose, and maybe even the most important.
But there are a few more:
Paying for final expenses
Though it’s possible to do a relatively inexpensive funeral, you can’t do one for free! Even a modest funeral will cost several thousand dollars. If you have no life insurance, and especially if you have a few liquid assets, this could create a deep hole for your loved ones in the event of your death.
Uncovered medical expenses
Since death is frequently preceded by an extended period of medical treatments, that can result in out-of-pocket expenses. For example, if your health insurance policy has a $4,000 deductible, and a maximum out-of-pocket of $6,500, your family could be stuck with those bills after your death.
This is even more true in an age of Obamacare, where health insurance typically includes high deductibles and out-of-pocket maximums in order to make the coverage more affordable. But if you have no health insurance at all – and millions don’t – your family could be facing tens of thousand dollars in medical bills. Life insurance can prevent this.
Any loans cosigned by a family member that are outstanding at the time of your death will become obligations to your family. And even if a family member didn’t cosign for it but want to keep the asset, like car or house, those loans also become the obligation of the family. But of course, they will have to deal with those obligations without your income. This can stretch an already limited household income to the breaking point.
Your life insurance should include a large enough death benefit to not only cover final expenses and outstanding medical costs, but also enough to pay for outstanding debts, particularly car loans and credit cards. If you really want to provide for your family, your death benefit will be high enough to pay off the mortgage on the family home.
Money for adjustment
After your death, your loved ones will be traumatized. This can lead to reduced income, due to missing work. It could also increase health-care costs, as the family experiences more frequent illness, as well as emotional trauma. A life insurance policy can help to offset these expenses, giving your family extra money to adjust to life without you.
Who Needs Life Insurance?
Up to this point we’ve been focusing on the need to have life insurance on your own life for the benefit of your loved ones. But you should also strongly consider having policies on each of them. Any of the financial situations listed above that your family can face in the event of your death, can also effect you should one of them die.
It’s often felt that single people have no need for life insurance since they have no dependents. But if you are single, and you have family – parents, siblings, and even nieces and nephews – you should still have some life insurance.
At a minimum, you should have enough to cover final expenses, medical costs that anyone has paid on your behalf, and especially any loans where a family member has cosigned in order for you to get a loan.
Cosigned loans don’t disappear because the primary borrower dies. The lender can still go after your cosigner. Having life insurance will prevent that outcome, and keep your family member from being pursued for full payment of the loan.
Why People Don’t Have Life Insurance
There are a number of reasons why people don’t have life insurance, but here are three of the more common ones:
Not enough money
If your budget is tightly stretched, it can be legitimately difficult to find money to pay for a life insurance premium. However, that should make you realize even more that if your household finances are tight while everyone is alive and well, it will be infinitely worse should one of you die.
In addition, there is a term life insurance policy that will fit virtually every budget. It’s worth cutting an expense or two to make room for this all important financial service.
“I have a policy at work.”
Many employers do provide life insurance for their employees, but it usually caps out at a relatively low level, generally no more than $50,000. At today’s cost levels, that’s a very minimal policy.
And then there is also the problem that you could lose your life insurance should you lose your job. And when that happens, it may not be so easy to find affordable life insurance, particularly with no job income.
Fear of death
Some people don’t like to even talk about life insurance because it’s like betting on your own death. They may even reason that just the fact that you are taking a life insurance policy increases the chance of your death.
But the reality is that you will die someday, whether or not you have life insurance. And the only fair course of action is to have a policy in place, for the benefit of your family members.
Why Term Life Insurance Provides the Best Coverage
Cost is a significant factor in making any purchase, including financial services like life insurance. But once you recognize the absolute necessity of having life insurance coverage, it’s just a matter of finding an affordable policy.
The best choice is term life insurance. It’s not just less expensive than investment type policies, like whole life insurance, but much less expensive. It’s possible to purchase a term life insurance policy for just 10% of what it would cost for a whole life insurance policy with the same death benefit.
That means that the $200,000 policy that will cost $3,000 per year for whole life, can be had for around $300 with a term life insurance policy.
The difference between the two premiums is that whole life includes an investment provision. The additional premium that you pay goes into the cash value of your policy, as well as payment of the many fees that are associated with whole life policies.
Term life insurance, on the other hand, is pure life insurance. If you buy a term policy, and invest the difference in premiums (between term and whole life) in an index fund, you will have better investment returns than you would by “investing” through a whole life insurance policy.
Term policies also provide you with the ability to match coverage with need. For example, your greatest need for life insurance is when your children are very young. Let’s say that you have preschool age children; you can take a 20 year term life insurance policy that will cover your family until your kids are adults. Once your kids are grown, you won’t need as much coverage.
You can do the same thing with your mortgage – match your life insurance with the outstanding balance on the loan.
The best way to shop for a term life insurance policy is through an online life insurance site like SelectQuote. The advantage is that you can provide the information once, and then have the insurance companies come to you with quotes. This will give you the advantage of being able to make side-by-side comparisons, so that you can select the best policy for your needs at the lowest possible price.
If you’ve been delaying getting life insurance – or if you know that you don’t have enough coverage – start shopping today. Life insurance gets more expensive as you get older, which means now is the best time to get a policy.
This article was sponsored by SelectQuote, but all thoughts and opinions are our own.