Life Insurance Might Be Expensive For Some
The cost of life insurance depends heavily on your age, health, and the policy type and death benefit amount you choose. Young and healthy people typically get the best rates on life insurance. The older you are and the more health issues you face, the more expensive life insurance will generally be. However, the high cost of coverage may be most noticeable with a permanent life insurance policy compared to a term life policy, which are typically much cheaper. In many cases, life insurance is less expensive than youd expect, but price is certainly a consideration.
After Purchasing A Home
It may also be a good idea to purchase insurance after buying a home. A term life insurance policy could provide funds to repay a mortgage. Term life insurance policies are in effect for a set time, such as 20 or 30 years. They pay out a death benefit if the policyholder dies during the coverage term. This death benefit would help the policyholder to leave a paid-off home to surviving co-owners or other family members.
When Life Insurance For Kids Doesand Doesntmake Sense
Before buying life insurance for a child, make sure you have enough coverage for yourself. Protecting the financial well-being of loved ones takes priority. In fact, insurers usually require that parents have their own life insurance policies with at least as much coverage as they want to buy for a child as a prerequisite for insuring a child, Hoang says.
You also should make sure youve tackled other financial priorities before buying life insurance for a child. Building an emergency fund, saving for retirement and paying off high-interest debt should take precedence.
Take care of yourself before you take care of your kids, Meldrum says. Then, if you have room in your budget, you can consider life insurance for your kids.
Although life insurance for a child doesnt always make sense, it can be a good solution for some families, Meldrum says. For example, high-income parents might find the ability to transfer wealth to their children through a life insurance policy appealing. Or they might like the tax-advantaged growth on the cash value portion of the policy.
Also, if your family has a history of genetic medical conditions such as diabetes, it might make sense to insure your child, Meldrum says. Then you wont have to worry about whether your child will be denied coverage later in life if he or she develops a medical condition.
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Pros And Cons Of Group Life Insurance Through Work
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If you recently got a new job, or if its open enrollment season, you might have a chance to get life insurance through your employer at little or no cost to you.
But is group life insurance a good idea? Here is a rundown of the advantages and disadvantages of getting coverage through work.
Should I Buy Life Insurance When I Am Young And Single
This all depends on if you think that you will start a family in the future. If so, it’s good to buy insurance when you are younger, when it is more affordable. You may also want life insurance to establish an estate, give to charity, or repay debts and obligations upon your death, whether or not are single.
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Can You Get A Policy For Parents Without Their Consent
In most cases, the answer is no. If youre struggling to talk to your parents about taking out a policy for them, youre not alone. Talking with your parents about life insurance and their final arrangements isnt easy. But having this discussion can be helpful in many ways. Eighty-nine percent of adults over the age of 40 say discussing end-of-life wishes would be meaningful.
Explaining the purpose of the discussion is very important. Make it clear that your intention is to support their wishes exactly as they describe. Set aside a time to discuss how they wish to be remembered and determine how much life insurance is needed to pay for their final arrangements.
You dont want to buy life insurance for parents who have any concerns about the policy. If you need help on how to have this talk, visit The Conversation Project to get tips and tools on how you can make the discussion as smooth as possible.
Once your parent understands the necessity of life insurance, you can follow the step-by-step instructions listed above.
The Human Life Value Estimation Method
Some financial representatives calculate the amount you need using the Human Life Value philosophy, which is your lifetime income potential: what youre earning now, and what you expect to earn in the future. In its simplest form, the philosophy suggests that you multiply your income by a variable based on factors such as age, occupation, projected working years, and current benefits.
As with every individual, the amount of recommended insurance you purchase depends on many factors. Thats why its a good idea to talk to a Financial Representative when buying life insurance.
There are two basic types of life insurance permanent and term.
With term life policies, you pay a specific premium for a defined term . If you pass away during that time, a death benefit is paid to your beneficiaries but when the term is over, you have to get new coverage or go without.
Permanent life insurance policies, like whole life policies, are designed to last for your entire life. Over time, a portion of your premiums can build a cash value to your policy.1 That cash value gives you options: you can use it to pay for premiums later on , take loans and withdrawals, or you can surrender the policy after your beneficiaries no longer need it and get money to help supplement your income.2
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When Does The Policy Kick In
Different insurance companies have different guidelines that dictate when your policy will go into effect. For instance, some life insurance policies are effective immediately others wont pay the death benefit if you die in the first two years of your policy. Be sure to ask your insurance company about this important question before buying a policy.
It Can Cover Funeral Expenses
Funerals can be expensive. Dealing with this financial stress can add to the emotional stress your family might experience. Your family could use some of the death benefit from your life insurance policy to help pay for these costs. To do this, the beneficiary of the policy could direct some of the death benefit to the funeral home, or they can pay out-of-pocket and use the death benefit as a reimbursement for these expenses.
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Cons Of Life Insurance
- Cost to absorb. Even if you can benefit greatly from life insurance, it is an additional cost that you need to budget for. A young family might have a hard time budgeting for any additional regular expense.
- Cost to buy increases with age. The longer you wait to buy a policy, the higher the premiums will likely be. If youre a bit older and just now considering life insurance, prepare to pay more than if you had taken out a policy years ago.
- Medical history can increase life insurance quotes. Certain risk factors such as obesity, high blood pressure or smoking will typically increase life insurance quotes because your life expectancy is shorter.
What Is Life Insurance
First a quick recap about life insurance: Its a contract between you and an insurance company thatin exchange for your monthly paymentsguarantees a sum of money for your loved ones when you die.
Youll hear about a lot of bells and whistles with life insurancefrom child riders to savings accountsbut at the end of the day, the only job of life insurance is to replace your income when you die. Simple!
The beneficiaries who receive the payout will get peace of mind about some pretty important thingshow theyre going to pay the bills, keep a roof over their heads, and put food on the table. This is starting to sound like an all-around winner.
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Is My Life Insurance From Work Enough
If you get coverage from your job, its still critical to examine how much life insurance you need. Your jobs coverage might not be sufficient. For example, some employers provide a death benefit thats equal to your annual salary , although you might have the option to buy more.
Unfortunately, one year of earnings might not be enough to support your family. Some rules of thumb suggest buying 10 times your salary, while others look at your financial obligations to determine the right amount of life insurance.
Theres also the question of what happens when you leave your job. In some cases, you can take that coverage with you. However, that option isnt always available and even if it is, the premiums on that policy might rise over time, ultimately making it unaffordable.
What Is Group Life Insurance
Many employers offer free life insurance as a benefit. These employer-provided life insurance policies are sometimes referred to as basic group life. More Americans are covered by these workplace plans than individual plans, according to a 2017 study by the Life Insurance Marketing and Research Association, better known as LIMRA.
Coverage amounts are typically low, often ranging from $25,000 to a multiple of your annual salary. Coverage is generally guaranteed, which means you dont need to take a medical exam or answer health questions to qualify.
Because basic life policies are free and coverage is typically guaranteed, theres no reason not to accept it. All you have to do is sign up, and sometimes enrollment is automatic.
Fill out any required forms by the deadline provided, and make sure you name a life insurance beneficiary. Otherwise, the death benefit will automatically go to your estate, spouse or other relatives as determined by law.
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You May Have To Pass A Medical Exam
Many life insurance policies require a medical exam. The results of the exam will determine if you qualify for coverage or how much coverage a life insurance company is willing to give you. However, you can get life insurance without a medical exam. If you are facing severe health risks, you could even opt for guaranteed-issue life insurance. These options may be more expensive than the coverage you could get with a medical exam, but for some shoppers they could be the best choices.
When You Finally Need Life Insurance You May Not Be Able To Qualify
Not all deaths are unexpected in fact, more adults age 25-44 die each year from serious illness than by accidental injury,3 many leaving significant medical bills behind.
Unfortunately, by the time someone is diagnosed with a serious illness, it is often too late to get life insurance coverage. You can help ensure your family is able to stay in their home and not dip into savings to pay medical bills by having life insurance.
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How To Calculate How Much Life Insurance You Need
According to financial advisor Jeff Rose, who writes about life insurance and investments for his website Good Financial Cents, most families should strive to have at least 10 times their income in life insurance coverage.
However, thats a minimum to shoot for, he says, adding that 20 times your income is more in line with the amount of coverage people should carry. This is especially true for younger families whose income is expected to increase as their career advances, he says.
Based on Roses advice, if youre an individual whos currently earning $40,000 per year, you should strive to buy life insurance coverage with a death benefit of at least $400,000, but ideally up to $800,000 or more.
And, if you earn $70,000 per year? That means you need $700,000 to $1.4 million in life insurance coverage. Conversely, high-earners who bring in $150,000 per year may need as much as $1.5 million to $3 million in life insurance.
While 10x to 20x your income is a general rule of thumb, you may want to buy even more coverage depending on your lifestyle and your needs. Individuals who have a lot of debt may want to shoot for a higher death benefit, as will those who have multiple children.
When To Get Life Insurance
The sooner you get life insurance, the better.
With a life insurance death benefit, you can protect your family’s financial future in the event of your untimely death. Also, a life insurance policy can help pay off your debt with a co-signer . Likewise, the tax-free death benefit can cover any unsecured debt such as credit cards, personal loans or student loans you leave behind.
What your beneficiaries do with the death benefit is up to them. In most cases, life insurance companies offer three ways to disburse the death benefit:
- As a one-time lump sum payout: the full death benefit will be deposited in one payment
- As installment payments: the death benefit is kept in an account that earns interest and is paid to the beneficiaries in a series of monthly installments
- An annuity: the death benefit is invested by the insurance company for the long term on a tax-deferred basis, and its paid in monthly installments that are supposed to last for the rest of the beneficiarys life
Since term and whole life insurance offer different benefits, its important to understand each coverage before purchasing a policy. Take a look at our term vs. whole life insurance analysis to select the right policy for your needs.
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How Much Does Term Life Cost
The cost of term life insurance varies by company and is based on your age, coverage amount and term length. While some companies dont require a medical exam, you may be able to get a better rate if youre healthy and undergo one. Your health, lifestyle, hobbies and occupation are used to determine your risk class, which then determines your cost of life insurance.
MoneyGeek obtained real sample quotes for term life insurance at different ages to show you how much term life insurance can cost. The table below shows how much you could pay for a 10- or 20-year term policy at different coverage levels.
Term Life Insurance Average Monthly Premiums: 10-Year Policy
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Why Do You Need Life Insurance
Life insurance helps you plan ahead and provides long-term financial security for your family when they would need it most. You can’t put a dollar amount on your loved ones, but a term life insurance policy can help ensure their future is protected. Determine how much coverage you need and how long it’s needed, and the GEICO Insurance Agency, LLC and its partners can provide an affordable life insurance policy that is the perfect fit for you and your family. Get a life insurance quote online or call us at and get the satisfaction of knowing your loved ones are protected.
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Figure Out The Type Of Life Insurance You Need
Your reason for buying life insurance policy factors into how much coverage you need.
- Do you need life coverage until you pay off your mortgage and through your childrens college years? In that case, a term life insurance policy to cover those years may make sense.
- Do you want lifelong coverage or the opportunity to build cash value? Then, a permanent life insurance policy would be better.
It Can Help To Pay For Future Education Expenses
If you have children, life insurance can help your family pay for future childcare and education expenses, especially for college. Even if you’ve already started contributing to a 529 college savings plan, the death benefit from a life insurance policy can provide additional money to help cover your children’s education if you were to die.
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Reasons You May Need Life Insurance Even If You Think You Don’t
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- Most people don’t consider life insurance until later, but the best time to buy it is early on even in your 20s.
- If you financially support a partner, children, or aging parents, you need life insurance.
- Anyone working a high-risk job or with extreme hobbies is likely to pay more for coverage, but those risks alone are reason enough to get life insurance.
Most people aren’t thinking about life insurance in their 20s, but it’s the best time to buy it because most people’s health declines with age. The longer you wait to buy a policy, the greater the eventual cost.
An average 20-something or 30-something nonsmoker can expect to pay between $10 and $50 a month for a term life policy depending on the coverage amount. That’s less than the cost of a gym membership to protect your family’s financial stability in your absence.
Your life insurance needs change as you age, and you’ll need to consider children, , divorce, retirement, and caring for aging parents.
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If you don’t have life insurance, there are seven reasons you probably need it.