When you’re young, single and healthy, your mortality (and therefore life insurance) is something you rarely think about. After finishing school, you usually focus on your employment and career, perhaps marriage and family, rather than what may be a basic cornerstone of your financial plan. However, life insurance is something you should review, even at an early age. It can be more affordable, provide protection for loved ones and against debt, as well as provide a safety net as you grow older and have serious needs for your own spouse and children.
Many people rely on “group” life insurance that is offered by their employers. While this may be a very safe and cost-effective choice for you, please consider that if and when you leave your employer, the insurance may not be available or it may dramatically increase in cost. There is also a growing trend to reduce or eliminate this type of employment benefit.
When you are older, remember that your medical conditions affect your ability to obtain life insurance at a reasonable premium. Smokers face increased premiums as well.
Why buy life insurance?
The reasons for buying life insurance are very simple:
- The younger and healthier you are, the less expensive it is to buy
- It will pay off your debts and final expenses without burdening your family and friends
- It can help maintain your family’s standard of living when you are gone
- It can pay off your biggest expenses like your mortgage and auto loans, as well as any other debts
- It can establish a college fund and/or special needs fund for family
- In some cases, it can earn dividends and be a loan source if needed
The major types of life insurance
There are three major types of life insurance, with varying features:
|Term||Whole Life||Universal Life|
|Advantages:||Simple, less expensive||Lifetime with case value||More flexible coverage and cost|
|Use:||Shorter term needs||Lifetime||Permanent and flexible needs|
|Guaranteed:||Yes, if paid as required||Yes, if paid as required||Yes, if terms are defined|
|Cash value:||No, only premium return||Yes, if paid as required||Yes, and tax deferred|
|Level premiums:||No, increase with age||Yes, guaranteed||No, may increase|
|Lifetime coverage:||No||Yes, if paid as required||May expire if conditions not met|
|Dividends:||No||Yes, but not guaranteed||No|
|Types available:||Many different terms||Many different types||Several types|
There is also what is known as funeral or burial insurance which is typically a low-value policy intended to cover end of life expenses.
What kind and how much to buy
When buying life insurance (and for that matter, any kind of insurance), your needs will vary depending upon your individual circumstances. Typical guidelines suggest you obtain insurance for five to ten times your annual salary, but other factors may need to be taken into account. To get a rough idea of what you’ll need, you can use an online tool like this life insurance calculator from LifeHappens.org. Armed with some basic knowledge, you can then seek out licensed professionals who can help advise you on your individual needs and help service them.
I strongly advise that everyone establish some kind of policy as soon as they can afford it. My personal experience is that it is so costly and difficult to obtain when you age and your health declines, that the money spent establishing your life insurance at a time when you are young and healthy is well worth it. Then, re-evalutate your needs (and beneficiaries) periodically, or whenever you have a major life change.
You can obtain more information about life insurance from a variety of sources, including your state of residence government website (department of banking and insurance), directly from insurance providers, or from insurance agents.
What life insurance plans have you made to protect yourself and your family?