Let’s discuss a topic that most people do not think about often enough. Life insurance is something you should be thinking about as soon as there is someone else in your life who would be affected financially by your death.
It is absolutely a necessary expense in your budget.
It is always better to be protected to lessen the financial burden that death may cause for your family.
While usually I am advocating for ways you should be saving money, this is an instance where I am recommending that you spend money in order to protect yourself financially in the case of a tragic event.
Saving a little money now by not purchasing life insurance could cost you or your family thousands or even tens of thousands of dollars in the future.
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Why do I need life insurance?
There are numerous scenarios where life insurance will benefit you.
- If the main or sole breadwinner in your family were to unexpectedly die…
- how would you pay your bills?
- would the surviving person be able to afford the mortgage on their own?
- how would your family pay for any medical expenses or the funeral expenses?
- how much debt do you have, and what kind?
- would you be able to live the same lifestyle that you currently live?
- if you have kids, can you afford childcare?
- If you are single and unattached…
- do you have any loans co-signed by another person?
- are you hoping to leave an inheritance to someone?
- do you have enough assets in your estate to cover outstanding bills, debts, medical expenses, and funeral expenses?
Expenses to Consider
Federal and most parent PLUS student loans will be discharged when you die. This means that no one will be responsible for the balance. There are some private student loan companies that will require the balance to be paid. How will these balances be paid off?
Since you have no way of predicting the future, your death could easily be preceded by numerous medical expenses and of course, there would be funeral expenses incurred after death. If you have no assets to cover these expenses in your estate, then family members will be left to cover them if you do not have life insurance.
If you have a family and you or your spouse were to die, would your family be able to keep living the same lifestyle? Would a non-working parent suddenly and desperately need to find a job? Life insurance can help ease the financial pain that could come with the death of the main or sole income provider.
Okay, so now that I have got you thinking, I hope that you realize how important life insurance is for you and your family!
But Erin, I don’t even have a job, so why do I need to get a life insurance policy for myself? If by “I don’t have a job” you mean “I am a stay at home mom”, then you DO have a job that provides value to your family! Who would watch those kids and how much would it cost for childcare if something were to happen to you?
And that is only one aspect of the value you provide to your family, whether you are making an actual income or not.
What type of life insurance should I buy?
There are two main types of life insurance to consider. I strongly recommend one type over the other, and I have had both!
I did not even consider life insurance until I was married and a new teacher. At my first job, it probably never even crossed my mind and I have no idea whether I had any sort of policy or not.
A benefits advisor came to our school and you could meet with them regarding whichever benefit you had questions about. All I remember was that the person I met with told me that whole life would cover me for my whole life (duh?) and that it was the better option.
So I found myself paying around $30 a month for $50,000 of whole life insurance. But I really had no idea what that meant.
Whole Life Insurance
Whole life insurance is definitely a good option for some situations. You pay a higher premium to have coverage for your entire life, with a guaranteed payout to your beneficiaries when you die. It also allows you to build up cash value in the policy that can be used while you are alive.
If you have a dependent that will be a life-long dependent (such as a special needs child) this is a good option to look into.
If you anticipate having a large estate at the time of your death or would like to leave inheritance money to someone, it is a good option to look into.
But let’s be honest, most of us are just looking to make sure that our family is taken care of financially if we were to die prematurely.
That is where term life insurance comes in.
Term Life Insurance
Term life insurance is much cheaper than whole life insurance, but it only lasts for a certain term, usually of your choosing. The options are typically 10, 20 or 30 years. For some policies, you have the option to extend the term before a certain date or convert the policy to whole life if you feel you will need it.
I would hope that most people have a goal to be completely debt free, own their home, and have great retirement savings. If these are some of your financial goals, and you are taking action to make that happen, then you should be just fine purchasing term life insurance.
Term life insurance is there truly as insurance if something were to happen to you or your spouse at a young age. It will allow your children or family to pay any debts, medical and funeral expenses, and to hopefully continue a similar lifestyle that they were used to.
Once your children are adults, you would hope they would not need to be supported by you financially. And once you are of a certain age (close to retirement) the plan would be that you would have limited debts and a generous amount of money saved to cover your estate when you die.
Our Life Insurance Coverage
Remember how I was paying $30 a month for just $50,000 worth of coverage? While that sounds like a lot (it did to me at the time), it would probably be enough to cover funeral expenses and some debts, however, there is no way it would replace the monetary value I add to my family.
We now pay a little over $100 a month for $500,000 of coverage for me and $1,000,000 of coverage for my husband. Think about what else you spend $100 a month on. Cable? Eating out? Are those expenses going to possibly help ease financial burdens for your children if something happens to you?
How much life insurance should I purchase?
While I am definitely not an expert on this, there are a few things to consider when determining how much to purchase.
The first thing you should do is consider how much debt you have, including your mortgage. Maybe you or your spouse would like to pay off debts to help ease the burden of being a single parent.
Next, consider what you or your spouse would need to do in terms of child care, if applicable. Would someone need to get a job? Would it still be cheaper for the surviving parent to stay home? If so, how much net income (after tax) would you need and for how many years? This also applies for just general living expenses. What sort of lifestyle would you like to maintain?
These are some of the questions that we were guided through when determining how much for each policy to take out. To start you out here is a pretty good tool to help you determine what you need, but it may help you more to meet with a financial advisor that you trust.
Final things to consider when purchasing life insurance.
If you think you are too young to worry about this, remember, life is unpredictable. You should be planning as if something could happen to you tomorrow. A benefit to starting young is that you are likely in great health, which means that your premium will be lower. If you wait too long, your blood pressure, cholesterol, and even age could contribute to a higher premium.
I felt a little silly when we were determining how much coverage to purchase. I remember being asked if I would like to continue staying home with my kids if something were to happen to my husband. My gut reaction was yes, of course! Especially if they were younger and had just lost a parent. The rational side of me thought well obviously you would need to get a job and be responsible.
But wouldn’t it be nice if for just a couple more dollars a month, you had that safety net in place with enough money to buy you some time to adjust to your new life and find a job (or not) at your own pace?
Don’t be afraid to be honest with yourself about what you would want when you are determining coverage amount. And make sure you shop around for premiums if you are not comfortable with what you are being offered.
Finally, the peace of mind knowing that we have a financial plan in place in case of a premature death is amazing. Do not let yourself or your family get caught in a tough spot. Sometimes you have to spend money to save money in the end!
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