Life Insurance: Decoded

It may seem strange to think about life insurance when you’re young and just starting your career and family. But the unexpected can happen to anyone, including you. That’s why it’s important to take steps to protect your loved ones financially in the event of your death.

Do I need life insurance?

If you have dependents and don’t have a large amount of long- term savings, it’s a good idea to have enough life insurance to provide for them financially after you’re gone. According to LIFE Foundation’s consumer guide for life insurance , you should consider getting a life insurance policy when you:

  • Get married
  • Become a parent
  • Buy a house
  • Change jobs, get a promotion, or start a business
  • Retire

You’re more likely to get lower rates if you purchase life insurance while you are healthy, so purchasing a plan early on could save you money down the road.

What does it cover?

According to LIFE’s consumer guide, life insurance can cover more than just funeral costs or medical expenses. Your family can use the insurance payments to cover daily living expenses, mortgage payments, loans, credit card debt, tuition, and ongoing expenses such as health care, housing, groceries, and utilities. And as an added benefit, insurance payouts generally are not subject to federal income taxes.

What are my options?

There are two main types of insurance: term and permanent.

Term life insurance offers coverage for a specified period of time, usually for terms of from one to 30 years. If you die during the term of coverage, your beneficiaries receive the face value (full amount) of the policy. If you’re still alive at the end of the term, the policy expires and you’re no longer covered. You’re also not entitled to get any money back.

Permanent insurance, also known as “whole life,” includes both the policy and an investment, such as bonds or money market. This policy builds cash value that you can borrow against while you’re living. Whole life is more expensive than term insurance.

It can be hard to decide between term life insurance and permanent insurance, but many financial professionals recommend starting with a term policy and investing the cash you save by not choosing a permanent insurance plan. An independent insurance broker (someone who is not employed by a single insurance company) can help you find a plan that suits your needs and budget.

How much insurance do I need?

According to Forbes magazine , the amount of life insurance you need depends on the following factors:

  • The amount of debt you have. (Your family would need your life insurance to pay it off.)
  • The amount of your monthly expenses , and how much income your dependents will need.
  • Your savings goals, both monthly and long-term. (Your family would need your life insurance to help them achieve those goals.)

Check out LIFE’s online calculator to estimate the amount of life insurance that is right for you.

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