Life insurance provides financial support for your family in the event you die. It can replace your income, pay off debts, or cover future expenses. We shall be looking at everything you need to know about life insurance in this posts.
What You Need to Know About Life Insurance
To complement our discussion from the previous paragraph, usually, you don’t need life insurance until you start a family. But the younger and healthier you are when you get enrolled, the cheaper the cost.
There are two kinds of life insurance which are term life insurance and whole life insurance
I choose to recommend term life insurance over whole life insurance because of the following reasons. Buying life insurance involves:
- Getting free quotes online
- Completing an application with the help of an agent
- Getting a mini physical exam (usually conducted at your home by a traveling nurse)
- Paying your first premium.
Common Myths About Life Insurance for Young People
As soon as you start a family, life insurance becomes a critical part of your financial plan. And the younger you are, the more affordable life insurance is to buy. Life insurance for young people isn’t different; it just costs less for obvious reasons: young people have longer life expectancies and are, on average, healthier than older populations.
Nobody needs life insurance in their twenties, but everybody needs life insurance when they get older. Certain types of life insurance are a smart way to build wealth. But you only need life Insurance If You Have dependents.
Don’t base the decision to purchase a life insurance policy on age. If you’re under 30 and already have two children, unless you’re already wealthy, you should have life insurance. You may be healthy, but accidents happen, and the responsible thing to do is to leave your children with something. On the flip side, if you’re 30, 40, or even 50, and single, you probably not need life insurance. If you kick the bucket, so what? Your salary wasn’t putting a roof over anybody’s head but your own.
As soon as you have a child, you need to start thinking about life insurance. You only need to carry life insurance until your oldest child moves out (or finishes college, if you want to help provide for higher education) or you will have saved enough to provide for your family if you die. (If you’re investing wisely, you will hopefully have significant assets in 20 or 30 years). And with guaranteed level term life insurance, the younger and healthier you are when you purchase policy, the less you pay for the entire 20 or 30 years you carry the policy.
There’s one situation in which you might want to buy life insurance even if you don’t have a dependent spouse or children: If you somebody cosigned your student loans or another large debt. For example, if your mother co-signed student loan and you pass away, she will be on the hook for the remaining balance. In this case, a very modest amount of term life insurance could enable your mother to pay off the loan in the event you die.
Term Life Insurance Is Best for Most People
Unfortunately, about 61 percent of life insurance policies sold in the United States in 2010 are whole (or cash value) life insurance policies as opposed to term life insurance policies, according to the 2011 American Council of Life Insurer’s Fact Book. What’s the difference?
Whole Life Insurance
With a whole life insurance policy, you pay regular premiums to the insurer and the insurer invests your premiums (minus expenses). If you die before the policy expiration, the insurer pays out a full death benefit. If you don’t die before the policy expiration, you get back your premiums plus interest, minus expenses. There are people who strongly believe whole life insurance is a good investment, but many independent financial writers disagree (see the example below).
Term Life Insurance
Term life insurance is temporary insurance. With a term policy, you pay regular premiums for a fixed term (e.g., 10, 20, or 30 years). If you die within it that term, the insurer pays a death benefit. Otherwise, when the term expires, you do not get any of your premiums back.
Okay, so based on the above descriptions, cash value sounds like the better deal. After all, with whole life insurance, you get to keep some of your investment if you don’t die. Why should you go with term life insurance?