Although most people don’t like to talk about it or even think about it, there is one guaranteed certainty in life, and that is that we’re all going to die someday. Once the anxiety subsides and we come to grips with the fact that we’re not superheroes, but mere mortals, it’s natural to wonder about how well we are prepared financially for the inevitable.
Have you thought about how your loved ones would pay for your funeral or cremation? Or how they would manage financially without your income?
Such thinking often leads to everyone’s favorite topic – life insurance!
But the mention of the words “Life Insurance” often bring anxiety and confusion to many people.
“Do I really need life insurance?”, “How much coverage should I have?”, “At what age should I obtain a life insurance policy?”, “How much can I afford?”, and “I already have life insurance, do I need more?” are some of the most common questions asked.
In an effort to provide some clarity on the subject, here are some of the most frequently asked questions and answers to help you navigate through the life insurance conundrum.
Do I need life insurance?
You need life insurance if:
- You have dependents who rely on your financial support, and your death would result in a financial hardship for them
- You have debts or other expenses that you would like to pay off so that your beneficiaries do not have to worry about the financial obligation
- You wish to leave an inheritance. This goes a step further than providing income. An inheritance can help your children pay for a college education, a wedding, a downpayment on a first home and more
- You have a charity or cause that you desire to leave money to
- You seek peace of mind knowing your loved ones are taken care of financially
How much life insurance coverage do I need?
The amount of life insurance a person needs is subjective because we all have different financial situations. There are many different opinions on this topic, but one simple way to help determine the amount of life insurance you might need is to add up your long-term financial needs, and then subtract your assets. Any negative difference remaining is the amount, or “gap”, that a life insurance policy can help fill.
Some things to consider:
- Funeral expenses
- Last debts (credit cards, medical bills, utility bills, student loans, estate settlement costs)
- Car payments
- Tax obligations
- Dependants income (do you wish to provide income for your spouse/family to help them adjust to a new standard of living).
- College education for any dependents
There are different life insurance calculators online, and of course, you can always contact a friendly life insurance agent who will be glad to offer their expertise.
What is a good age to take out a life insurance policy?
As with saving money for your retirement, the answer is “The Sooner the Better!”
When looking at an applicant, a life insurance company calculates the likelihood that the applicant will make a claim at some period in the future. The risk to the company is the death of the policyholder. There’s a higher risk of death as we age, so life insurance premiums are considerably lower the younger that you are at the time of application, and they rise as you get older.
The policyholder’s health and lifestyle are also major considerations.The healthier you are, the lower the cost of your life insurance coverage should be as compared to someone who, for example, is overweight, smokes, and has a chronic illness.
How much life insurance can I afford?
The two types of life insurance policies that you usually hear about are Term Life Insurance and Permanent Life Insurance, with Term typically being the least expensive.
Term policies pay a death benefit, but have no cash value and are typically sold in lengths of 10, 15, 20, 25 and 30 years, although there are other terms available.
With a term insurance policy, your premium (your monthly or annual payment) remains constant throughout the term. The shorter the term, the lower the premium. And as mentioned in the section above, the younger you are when you apply for life insurance, the lower your premium will be.
Term life insurance is an inexpensive way to protect your beneficiaries for a specified period of time.
Whole Life Insurance
Permanent life insurance is any form of life insurance other than term. Examples are whole life, universal life and variable life. These policies combine term life insurance with a long-term, tax-sheltered savings plan.
Whole life insurance is the most basic type of permanent life insurance. It provides coverage that lasts a lifetime and also builds up a cash value that you can borrow against, withdraw or use to pay future premiums.
A life insurance policy with a cash value is ideal for those who have a lifetime need for insurance protection, prefer stable premiums over the life of the policy, want a policy that allows them to build tax-deferred values, and value the high degree of coverage the policy affords. While rates for a whole life insurance policy remain stable over the life of the policy, premiums are initially more costly than for term insurance.
I already have life insurance, do I need more?
This is a good question. Our financial needs and obligations change quite frequently, and can often change from one year to another.
We all experience major life changes such as marriage, divorce, the birth of a child, disability, caring for an aging parent, and other events. As a general rule, you should always review your life insurance policy after a major life change and annually to see if it still meets your family’s current lifestyle needs.
Some final thoughts
If others depend on you for financial support, part of your financial plan should include how you will provide for them in the event of your death. It’s not a pleasant subject, but it’s an important one.
Request a consultation
If you have questions about term life insurance or permanent life insurance and would like to speak with our Lehigh Valley life insurance experts, fill out the form below. A life insurance expert will reach out to you to discuss life insurance options that fit the unique needs of your family.
Arbor Insurance Group provides life insurance and other personal and business insurance products throughout the Lehigh Valley, including Allentown, Bethlehem, Easton, Emmaus, Macungie and surrounding areas.