Do I Need Life Insurance?
Who loves paying insurance? No one. Who loves coverage when a disaster happens? Everyone. I rarely get asked about life insurance because let’s face it; no one likes to think about the time that it may come in handy. However, if you have dependents, life insurance is a must. Today I will be breaking down what life insurance is and if it is right for you:
So, what is life insurance?
Life insurance is a policy where you agree to pay a premium in exchange for a death benefit to pay out to your beneficiaries when you pass. The sole purpose of a life insurance policy is to care for your dependents after you die.
I don’t have any dependents, is life insurance right for me?
If you do not have any dependents (aka someone that needs your income to survive such as children, spouse, parents), then life insurance is not appropriate for you. Unlike a 529 plan, it is not beneficial to buy life insurance before you need it. You need a specific beneficiary in mind before you buy.
How does life insurance work?
Three main components make up a life insurance policy:
Death Benefit - This is the amount of money that will be paid out upon your death to your beneficiaries. This is usually 10-12 times your yearly income for term life insurance. Your insurance company will help you figure out this number.
Premium Payment - This is the amount of money you will pay every month in exchange for your death benefit upon your death. This is also known as the cost of insurance — factors such as age, health, occupation, personal risk, mortality cost, and administrative fees are all taken into account.
Cash Value - If you have a universal or whole life policy, your cash value works like a savings account where you can grow funds tax-deferred.
What type of insurance should I get?
There are two main types of life insurance; whole life insurance and term life insurance. Term life insurance is the most appropriate option for most people where it lasts a specific number of years, and if you do not pass within that time frame, it expires, and no benefit is paid out. Whole life insurance includes a cash value account which builds over time.
What is the best deal?
By far, the best “deal” for life insurance is a term policy. Whole life insurance is expensive and does not have the flexibility a regular investment account would. You would typically be better off investing those funds from your whole life insurance policy on your own. You would have more options and potentially a better return.
Where can I buy life insurance?
You can buy life insurance directly from an insurance company, through an independent broker, or an independent online broker. I do not recommend buying life insurance through a broker associated with a specific company life MetLife or John Hancock. These individuals may sell you on a policy that may not be right for you. They are required to provide you with insurance from their company which may be too expensive or not necessarily fit your needs.
Where can I get life insurance quotes?
Please shop around! Do not get one quote and buy. Sites like policygenius.com are great ways to see how expensive a life insurance policy may be for you and your family.
This is by no means a comprehensive list! Please be aware that there could be many more factors to consider for you and your family. The bottom line is that if you do have dependents that rely on your income for survival, life insurance is necessary.
Have more questions? Contact me!