It’s a subject that none of us enjoy talking about: whether you need life insurance. It can be a bit frightening to dwell on our death and planning for it whether you are 25 or 85. Being 67, I can’t help but think that I’m not going to be around as long as I have been, and that’s a subject that makes me worry about my younger wife, my kids, and their financial futures. There are a number of important things to consider here and a number of myths about life insurance that need to be discussed while you can do something about it. Let’s examine the facts we are facing now when looking at life insurance in 2016.
Fewer Americans have life insurance today than they did just 10 years ago. Just 60% of us have life insurance and that number was around 70% before the 2008 “great recession”. The reason is fairly simple. A lot of us feel that having life insurance is just too expensive and doesn’t fit into our budget plan since the economy, unemployment, and the difficult times of 2008 have lingered into the present.
With so many having no insurance or are underinsured (and that number is growing), you would think that people would be uncomfortable about that. They are. When surveyed by NY Life in 2014, almost 3 out of 4 Americans felt they didn’t have the coverage they wanted to have and that dollar gap has been widening every year since 2004.
About 40% of Americans have no life insurance coverage at all
I can remember back when I was younger and first out on my own. I didn’t have any life insurance and it remained that way until I had a job where my employer offered it as a benefit. It was free to me and was a policy that equaled my salary so it was a no brainer to get it. It was simple, easy, and no big deal, right? I kept that policy after I got married and never really thought about it after that. As long as I was employed there I had coverage. But then I changed jobs. And now married, owning a home, and having a child…I had no life insurance. That was 1981.
I’m sure that I am not alone when I report that youth doesn’t serve you well if you think you will be working at the same place throughout your life and you are depending on a life insurance policy supplied by your employer as a free benefit for your coverage. Young people today are changing jobs more frequently than ever before, and I’m not certain if life insurance is a common offering in a world where companies are seeking to limit or eliminate costly benefits. So what to do?
Millennials and their life insurance needs
The age and invincibility of youth tends to work against Millennials and their strategy of life insurance policies. 7 out of 10 don’t have any policies compared to just 5 of 10 of their Baby Boomer counterparts. Without too much thought, it makes sense to be insured when you are young, healthy, and the cost is at the lowest it may ever be in your lifetime. Insuring and locking in cheap rates when you are young gives you more options, better coverage, and in some cases it can actually be a financial tool enabling you to build equity in an investment or even borrow against it in an emergency. Of course, in the case of a tragedy, its main purpose is to help with the expenses and long term financial issues that will go on even after you die. That’s why we have life insurance in the first place.
The problem for Millennials and all the rest of us is that since the 2008 recession, so many of us have had to make cuts in our budgets that we have decided that life insurance just won’t fit into it. Here’s a shocker though. The concept that Millennials are postponing marriage and children isn’t completely true. In fact, over 50% of all Millennial women (age 20-34) have at least one child and another 50% of those women have at least two! They have plenty of reasons to be insured.
Obtaining life insurance
Back in the day, it was a bit intimidating and time-consuming to get life insurance coverage. There was lots of paperwork and health questions, blood pressure and blood testing, and then the time consuming waiting period of 30, 60, even 90 days before any coverage would begin.
It’s a lot easier today, especially for younger people. You can obtain life insurance almost instantly (term particularly) by going online and answering just a few questions, paying your premium and getting coverage the same day. Coverage amounts can be much more than “salary” coverages and can be as high as $500,000 for a healthy Millennial at a really low cost. But how much do you really need? That’s the age old question that all of us have to answer. The answer is some place more than zero, and the high point really does depend on your personal situation and circumstances.
Baby Boomers and their life insurance needs
Older Americans face the problem of life insurance in different ways than their younger counterparts. First, many seniors are the care providers for their grandchildren and even adult children these days. That means that if and when they pass on, they worry about the continued care and financial future of those important people as well as their own spouse’s future after death. Seniors more than ever also face unpaid mortgages, even after their retirement. I’m in that circumstance and it is a major concern of my own. What will happen to my wife (who is much younger than me) if she has to continue to pay every month for years and years? That was something I didn’t consider. Mortgage life insurance is another option to help deal with the problem of this responsibility.
Seniors like me also worry about estate taxes, and taxes are a real issue if you are counting on leaving your heirs money that can assist them in their future. Insurance proceeds aren’t taxable and are an option to consider even when they are being used as a simple way to pass on personal wealth and not specifically to help in hardship cases.
Health plays a big role for us all, but especially in the purchase of life insurance for seniors. Term life may not be an option because insurers worry about the risky nature of high payout cheap insurance for older, less likely to be healthy, people. Whole life, more costly, may be the only option to obtain coverage and for sure it will be in a smaller amount and be much more expensive than any other kind. Because I didn’t plan as well as I could have, I have had to cut back my term life insurance every five years since I turned 55 because of ever increasing premiums. Eventually I fear I will be reduced to a very small and inappropriate amount to leave my wife and children. I wish I had been advised and more aware than I was back while I was healthy.
Make the assessment now while you have the opportunity to do it at the least expense. Life insurance isn’t a luxury, it’s a necessity for those who need and have concerns about their families and their heirs.
Do you have life insurance? Have you thought about all the options and costs? Will you have the appropriate amount as you progress through the various stages of life including your retirement?
Related Post: Why You Need Life Insurance explains not only why, but about the different kinds of life insurance