While no one likes talking about their demise, remember this: life insurance is truly about life, not death. It’s important to consider life insurance with perspective.
Think about who is dependent on you financially (i.e., spouse, children, family), and how much income replacement is needed (i.e., seven to 10 years of salary) to sustain them after you’re gone. Are there financial goals (i.e., paying off the mortgage, funding children’s education)? Life insurance benefits can also pay for in-home support like childcare, cooking, cleaning, and other dependent care.
Life insurance helps alleviate financial burdens for your loved ones, so they can grieve and move forward without worrying about money.
Term life is the most common type of life insurance, and the least expensive. It covers you for a fixed period of years; if you outlive the term and your coverage expires, your beneficiaries don’t receive any money. Kind of like car insurance. The chances of a younger adult passing away is very low, which is why these policies are so affordable. With most term policies, the death benefit and your premiums stay the same for the entire term.
I often recommend clients purchase insurance on an individual basis, rather than through an employer group option, if possible. If you switch jobs, there’s no way to know if your new employer will offer similar coverage, if any at all. Locking in a fixed amount of portable coverage with fixed premiums while you are young and healthy makes a lot of sense. Layering two smaller policies of different terms (such as 20 years and 30 years) is cost effective. Over time, your income replacement needs typically decrease; one policy can expire, and you’ll still have an affordable policy in place for another 10 years.
“Make sure your family knows about your life insurance. When my uncle passed, there were no bills or statements for his insurance. The only clue that he had a policy was a premium deduction on his pension statement. Keeping a summary of your coverage in a safe and obvious place will help make a difficult time for your family a little easier.”