If you die suddenly, your loved ones may face financial crunch. Life insurance can provide protection, but getting coverage can seem confusing as you juggle all of life’s other responsibilities. How do you know when you need life insurance, and what should you consider when evaluating coverage?
The best time to get insurance is often when you’re young and healthy, but it can be helpful in other situations as well. We’ll review why it’s best to buy early, and we’ll highlight several situations when life insurance can be important.
why you should take life insurance
Life insurance can protect loved ones by providing a substantial amount upon your death. The death benefit is generally tax-free for beneficiaries, and those funds can pay debts or cover everyday expenses for survivors.
When is the right time to buy life insurance? The short answer is, buy as soon as you find out you need it. Costs go up as you get older, and as time goes on, you run the risk of developing (or being diagnosed with) health problems that could make you uninsurable or make coverage more expensive. Can make
Kyle Hill, CFP from Hill-Top Financial Planning, LLC, becomes proactive when clients anticipate a future need for insurance. Hill told The Balance, “With the young families I work with, if there is any possibility of having children, we try to get something in as soon as possible because you never know what might make you insurable in the future. What can happen for. Via email.
The death of a working parent is a classic example of the need for life insurance. However, protection can be helpful in other circumstances as well. For example, if the live-in parent dies, a surviving parent will need to arrange for (and pay for) the child’s care, as well as the live-in parent. All other household chores done by, or stop working—both of which have an economic impact.
Is my life insurance from work enough?
If you get coverage from your job, it’s still important to check how much life insurance you need. Coverage from your job may not be enough. For example, some employers offer a death benefit that is equal to your annual salary (or a small multiple of your salary), although you may have the option of purchasing more.
Unfortunately, one year’s earning may not be enough to support your family. Some rules of thumb suggest buying 10 times your salary, while others look at your financial obligations to determine the right amount of life insurance.
There is also the question of what happens when you quit your job. In some cases, you can take that coverage with you. However, that option is not always available; And even if it is, the premium on that policy may increase over time, eventually making it unaffordable.
when to get life insurance
starting a family
Young and growing families often need life insurance. When you have children who cannot support themselves, your death may leave them in tragic circumstances. Also, a surviving partner may be left without any household income, or with demands (including child care) that prevent them from earning an income.
Life insurance can help a family replace a salaried income, pay off debt, fund education for children, and avoid financial hardship. For many families, term life insurance is a great solution.
“I am a big proponent of level life insurance, especially for young families,” Hill said, pointing out that relatively small premiums can buy a large death benefit. Plus, Hill said, kids can be self-sufficient after age 20, and you can accumulate assets over that period that support a spouse.
Life insurance often makes sense if you have dependents who may not be able to support themselves financially, such as children with special needs. As a parent, you provide for your dependents during your life, but you won’t live forever. Life insurance is one way you can help ensure that a child with special needs is financially secure.
Megan Koepka, CFP of Koepka Financial, LLC, told The Balance via email that a permanent life insurance policy can be helpful for some families in this type of situation. For example, your policy may fund a special needs trust with assets that support a child for life. Koepka points out that a second-to-die policy on both parents can be a relatively economical solution, as both parents must die before any payout is made, which lowers insurance premiums.
provide for loved ones
Even if you don’t have children, it may still make sense to buy insurance. For example, if you die, the emotional impact on your spouse or partner may make it difficult to work full-time. Would you want to go back to work right away if the roles were reversed, even though you could continue paying the mortgage? Particularly if financial independence is a long way off, coverage of some sort to pay off the mortgage or provide relief may be appropriate.
US The average cost for a funeral in 2021 was $7,848 in 2021.1 If you are concerned about final expenses for yourself or a loved one, final expense insurance may be a solution. Those policies often have relatively small death benefits — with relatively small premiums — but they can help ensure that you have a meaningful memorial. A final spending policy can also pay off small debts or medical bills.
how to get life insurance
To get insurance, you have to apply to the insurer by providing information about yourself. You usually have to answer a few questions about your health, any medical conditions and hobbies, as well as other personal information. Depending on the details of your application, you may be required to provide additional clarification or complete a medical examination.
You can often apply online, and you can get a decision within minutes. In some cases, however, you will apply with a life insurance agent, which can be helpful when you are shopping between insurers and looking for a policy that best suits your circumstances.
If you are approved for coverage, you pay a premium to keep your policy in force. It may also be possible to pay premiums with your application and get coverage as you apply. Ask your insurance company or agent how to get covered as soon as possible, and find out the pros and cons of different types of policies.