A life insurance policy guarantees that the insurance company pays a decided sum of money to specific beneficiaries when the insured (the person who purchased the policy dies). In exchange, the policyholder pays premiums during their lifetime to the insurance company.
There are two different kinds of popular life insurance policies:
- Term life insurance policies, which expire after a certain number of years
- Permanent life insurance policies, which remain active until the policyholder dies or stops paying their premiums
Do I Need Life Insurance?
There are many people who can benefit from having a life insurance policy. If you want to provide financial support to beneficiaries (which could be surviving dependents or anyone else) after your death, life insurance is a good option for you. Following are some examples of people who could benefit from life insurance:
- Parents with children who are under 18 — life insurance can make sure their children have financial resources until they can support themselves.
- Parents with special-needs adult children — life insurance can make sure your children’s needs will be met after you pass away.
- Elderly parents who want to leave money to adult kids who provide their care — life insurance can help reimburse a caregiver’s costs when the parent passes away.
- Adults who own property together — life insurance can make sure the surviving adult can still afford payments, upkeep, and taxes on the property.
- Young adults who want to get lower rates — the healthier and younger you are, the lower your life insurance premiums will be.
- Families worried about funeral expenses — small, affordable life insurance policies can cover funeral and burial expenses, so your loved ones aren’t left with undue burden when you pass.
- Wealthy people who owe estate taxes — life insurance can cover your estate taxes.
Generally, life insurance is a good idea if you have debt that will continue after your death or other people depend on your income.
When Should I Get Life Insurance?
There is no one right time to buy life insurance as everyone’s needs, circumstances, and goals differ. However, it’s generally better to buy younger. The younger you are, the lower your premiums. As you get older, you could also develop a health condition that could disqualify you from life insurance or make it even more expensive.
Following are some considerations to help you decide when you should buy a life insurance policy:
- How many dependents do you have? Think about how your passing would affect the financial security of your dependents. If you don’t have any dependents now but know you want to have a family, getting life insurance would still be a good idea.
- How old are you? Younger is better and can save you a good chunk of money over the life of your policy.
- What health conditions do you have? Even if you’re healthy, it may be a good time to get life insurance as you could disqualify due to health conditions later.
- How much is your cost of living? Think about how the survivors of your death would pay for their cost of living if you were gone.
- What is your work situation? If you have a business or are self-employed, life insurance could help your family pay off any remaining debts.
- How much money do you have in savings? Look at your savings and determine if you have enough money to cover costs like burial expenses and personal debts.
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