Just like you buy insurance to protect your current assets, you also need insurance to protect your family’s financial future in case something ever happens to you. Life insurance is what gives you that peace of mind.
What are the Different Types of Life Insurance?
Life insurance policies generally fit into two categories. Term life is for a set period of time, and whole life is for your entire life.
Term Life Insurance
Term life insurance is life insurance that you buy for a specific number of years. The most extended policy you can typically get is 30 years. Term life is ideal when you’ve identified specific needs, such as until your kids graduate college or until the end of your working career.
Most term life insurance policies pay the same benefit throughout the entire length of the policy. This is called level term. If you have a decreasing term policy, your benefit may drop each year slightly. An example of where a decreasing term policy might make sense is if you’re buying it to support your spouse, and you expect not to need as much life insurance as you age because your savings will have increased.
Whole Life Insurance
Whole life insurance gets its name from the fact that it lasts for your whole life. You do have to continue to pay your insurance premiums each year to keep your policy in effect. However, your premium is generally locked in when you buy your policy rather than increasing with your age.
Most whole life insurance policies allow you to cash in the policy if you decide you no longer need it. The rate at which your cash value increases is stated within your policy. This gives a bit of an investment component to a whole life insurance policy. Still, the returns would generally be less than traditional investments you could buy in your retirement portfolio. The strength of a whole life insurance policy is that you have the benefit of having life insurance with the option to take out your cash if you decide you no longer need life insurance.
Who Needs Life Insurance?
Most people probably have some sort of need for life insurance, whether they’re single, parents, or married without kids. Here are some of the common life insurance needs.
- Covering funeral expenses to avoid burdening your family or reducing the size of your estate.
- Replacing income that supports your spouse and/or children.
- Protecting against the loss of a stay-at-home parent and the additional childcare and other expenses the surviving, working spouse may face as a result.
- Allowing your family to pay off your mortgage to alleviate financial stress and burdens in a time of change.
- Protecting co-signers of your student loans, mortgage, or other loans from having to pay for your debt.
How Much Does Life Insurance Cost?
Life insurance policies vary in cost based on your age and type of policy. For example, buying a five-year term life insurance policy when you’re young will likely be less expensive than a 30-year term or whole life insurance policy, because the chances of you needing life insurance within the next five years will be much smaller. Similarly, identical policies will often be more expensive for older people, so you may want to lock in a low price while you’re younger.
What if Your Job Offers Life Insurance?
Many employers offer their employees great deals on life insurance via group discounts. However, there is no guarantee that this is the cheapest option for you or that the offered policies meet your needs. Treat an employer’s life insurance policy just like any other policy. If it’s a good deal and has what you need, take it. If it’s free or heavily discounted, but you need more insurance, you can buy additional coverage. If your employer didn’t get you a good deal, you can say no. If you need help deciding, get the policy documents and talk to your independent insurance agent.
What if You Have a Health Condition?
It is still possible to buy life insurance even if you have health problems. However, you may have to pay more, you may have fewer options, and the policy may limit what you’re covered for. Your insurance agent can help you find the right policy for you.
What if Your Life Insurance Needs Change?
You can almost always buy additional life insurance and even have multiple insurance policies at once. However, because advanced age or deteriorating health can make it hard to find the right policy at a low cost, you do need to try to plan ahead. Life insurance is one of the few insurance policies where being overinsured can now turn into a smart financial decision. For example, if you’re still in an entry-level job and don’t have kids yet, you may wish to think about buying a policy that your family can grow into. The small extra cost now may be much less than the higher premiums you’d find later.
What if I Don’t Need Life Insurance Anymore?
There may be scenarios where you no longer need life insurance. For example, you may be retired with a strong nest egg and your children are all established in successful careers. Before you make any final decisions, talk to your insurance agent about possible future life insurance needs that you may not have thought of or how to use your existing policy as part of your investment strategy or to leave a legacy for your heirs.
Get Help Now
To learn more about life insurance or to start your quote, talk to your insurance agent. Adam Johnston Insurance serves Janesville, WI, and the surrounding community. Contact us now to get started.