How Much Life Insurance Do I Need?
You insure your car, your house, and other assets because it’s either a legal requirement or a rational necessity. But when considering whether or not to insure your life, and how much you should invest in a policy, the answer isn’t so cut and dry. Many factors must be taken into account to determine your need for life insurance. Let’s first discuss what types of life insurance there are to choose from so you can make a more informed decision.
Types of Life Insurance
The three most common policies are term life insurance, universal life insurance, and whole life insurance. Term life insurance is the most simple; you simply agree to a set amount of time (usually 5-30 years) where you pay a premium. If you pass away during the time period, the insurance company gives you the agreed upon coverage amount. If you were to live past the term, all you have to do is reapply. But the premiums will go up as you age. Universal life insurance is a permanent insurance policy that gives a guaranteed payout but with lower premiums than whole life insurance. However, there still can be age limits for universal life insurance, depending on the carrier. With whole life insurance, unlike the previous two, your plan is yours for life, so long as you keep paying the premium. There is also a cash value that can accumulate based on market growth.
There are a number of other different and less popular types of insurance to protect you in different ways. One example is accidental death insurance, which is designed to protect you only from, as the name suggests, accidental deaths unrelated to health. Another is final expenses insurance, which only insures the costs of final expenses, such as burial and funeral costs.
It’s important to note that specifics about the policies, like the costs and returns and age restrictions, all differ from company to company. Make sure you do some research to determine which insurance agencies are most trusted, and work best for you.
Determining How Much Life Insurance is Right for You
First and foremost, you must consider your age and health. Many think that only older people have to worry about life insurance, but that isn’t always the case. While students and young single adults don’t typically need any life insurance at all, anyone who is married and has a child or children could benefit from having a basic term life insurance policy. The older you are, the more expensive the premium is because your risk to the insurance company goes up. But as you age, so do your children and their expenses, which means that getting a bigger policy is generally a good idea. Poorer health will also raise your premium because of the risk, and therefore it’s a good idea to get a fixed plan before you need one whenever you can.
The best way to concretely determine how much life insurance is the best for you is to speak with an insurance agent. With so many options out there, it can be overwhelming to try to figure everything out by yourself. But first, here are some yes or no questions to consider.
- Do I have many dependents?
- Would my significant other struggle financially if I passed away?
- Will my family need help paying for final expenses?
- Do I have few liquid (easily sold at a level price) assets?
- Do I have any family members who will be going to college or requiring similar large expenses in the future?
- Do I have a steady enough income to afford the insurance premiums?
- Do I have a lot of debt?
In general, the more “yes” answers you gave to the above questions, the more life insurance you should get. Life insurance can help make sure that in the event of your passing, your family members won’t have to be burdened by financial difficulties. Consider how many expenses they would need help with, whether they are regular living expenses, future college tuition, or just the funeral expenses. With all of the different options, however, you should make certain that you find the right plan for you. After looking over your personal financial and health information, and the information of your loved ones, speak with an insurance agent to get the best policy to match your needs.