Many people don’t know where to start when thinking about life insurance options.  They don’t know if they really need life insurance, how much they should buy, what type they should get, or how much it might cost.

A good starting question to ask yourself is, “If I died today, would my loved ones be financially secure and able to have the kind of future I’d want for them to have?”  Life insurance is a dependable way to protect the financial future of those who depend on you.

The best way to find life insurance that provides the coverage you need and fits your budget is to compare life insurance quotes from several companies, which an independent life insurance agent can help you with.

The Basics of Life Insurance

Life insurance is a contract between the insurance company and the policyholder.  The contract is called a policy and you (as the policyholder) agree to pay a premium to keep the policy active.  In return, the insurance company agrees to pay a death benefit to your beneficiary if you die while the policy is in force.

The amount of death benefit depends on how much coverage you choose to buy.  Coverage amounts can range from a very small policy to cover funeral expenses (final expense policies) to many millions of dollars.  You can name more than one life insurance beneficiary and designate that each one gets a certain percentage of the proceeds, or you can name a charity as your beneficiary.

Factors that affect the cost of life insurance include the death benefit amount, the type of life insurance you buy, and your gender, age, health, and other factors at the time you apply for coverage.  If you postpone purchasing life insurance and you develop serious health issues, you will face very high rates or possibly even be declined for coverage.

Benefits of Life Insurance

One of the most important benefits of life insurance is that it provides financial stability for your loved ones.  But, what many people don’t know is that certain types of life insurance policies can provide funds while you’re living, either through the cash value within a policy or through living benefits that allow you to access money from your own death benefit if you develop serious health issues.

Your life insurance beneficiaries can use a life insurance payout any way they like, using the money to help with their most important financial needs at the time.

There is also a substantial tax benefit to life insurance because the death benefit is generally not taxable.

Who Needs Life Insurance?

You many need life insurance if you have people who rely on you financially.  For example, you may need life insurance if:

• Your family relies on your income.
• You have a person who will be financially dependent on you indefinitely, such as a special needs child.
• You want to provide money to pay for your own burial.
• You want to leave inheritance to your children without having to worry about saving a large sum to pass on.
• You plan on getting married and having a family in the future and want to lock in lower rates while you’re young and healthy.

How Much Life Insurance Do I Need?

Although different sources have their own methods of calculating this, a good rule of thumb involves considering the following factors:

Debt – How much debt do you currently have?

Income replacement – How much of your income would need to be replaced each year and for how many years?

Mortgage debt – How much mortgage debt do you need to pay off?

Education – Do you have children that would need assistance with their college educations?  If so, would you want to help them with the cost of attending a public university or a private university?

Types of Life Insurance

There are two main types of life insurance policies – term life insurance and permanent life insurance.  There are several different types of permanent life insurance, so it’s important to understand what each type provides before making a choice to purchase a life insurance policy.

Term life insurance provides coverage for a certain length of time (or term).  These terms are usually 5, 10, 15, 20, 25, or 30 years.  The insurance company will pay a death benefit only if you die while coverage is in force.  Term life insurance policies are much lower than permanent life insurance policies and they can be an affordable way to have coverage in force during the years when your family depends on you most for financial support.

Permanent life insurance can offer lifelong coverage, as long as premiums are consistently paid.  It also offers the ability to build cash value that grows tax-deferred.  There are several different types of permanent life insurance, including whole life insurance, guaranteed issue life insurance, and universal life insurance.  While permanent life insurance can be more complicated and expensive than term life insurance, it can offer many great benefits to policyholders.

Would you like to learn more about how life insurance might benefit you?  Schedule a free consultation to learn more!

Sources:

1. Forbes.com

2. Investopedia