So how exactly does life insurance work? With life insurance, you pay a premium (just like with your health and car insurance), and in exchange, if you die, your beneficiary (whoever you list on your policy) will receive a lump sum of money to help with any financial burden that your death and loss of income would bring.
What’s the difference between term and permanent life insurance?
Generally, there are two options when choosing a life insurance plan, Term and Permanent. With Term Life Insurance, you choose the length of term you want to be covered. The most common term length is 20 years. Once your term is ended, there is no additional value. Permanent Life Insurance, or Whole Life Insurance, offers lifelong protection and sometimes you can receive dividends as well as have the ability to borrow cash from the plan. Most often, the premium for a term policy is going to be much cheaper than a permanent plan.
How much coverage do I need?
Once you have determined the type of life insurance to go with, you’ll need to then figure out how much coverage you need. This answer depends on your current monthly expenses and how much financial support your family will need and for how long. Also factor in the cost of a funeral and burial (average costs range from $8,000 to $10,000). There are many calculators available online to help you calculate an appropriate amount of coverage, and an insurance professional can help you determine the best amount for you.
When You Think You Don’t Need Life Insurance
If you’re single. Even if you’re single without dependents, a small life insurance policy to cover your funeral expenses, medical bills and any debts you have, could help your family in an already difficult time.
If you’re young and healthy. Some people believe that this is actually the best time to buy a life insurance policy because you can get a lower rate and lock it in while you’re young without health issues.
If you’re a stay-at-home parent. Another group that often doesn’t consider life insurance are at-home parents. However, the spouse who works full-time will of course need to continue doing so while paying for childcare and other costs.
If you’re married without kids. If you were to die, would your spouse be able to meet your rent or mortgage payments on their income alone? Would they be able to pay all of your bills, including credit cards?
Answering those questions, while also factoring in any medical and funeral costs, can help you determine if you still should acquire a life insurance plan.