There are a few reasons why life insurance is a hard topic to bully yourself into considering. First, thinking about future money is difficult. Insurance-related vocabulary words tend to nudge the majority of us into a deep sleep. Also, it’s hard to conceptualize the inevitable sequence of financial events that will occur after your demise — not just the funeral expenses, but also the unpaid student loan debt, the effect of your lost wages and, of course, the other inevitability: taxes.
A way to force yourself through this thought experiment without your eyes glazing over is to consider
the ultimate goal of life insurance: To provide income to your dependents in your absence. This single goal helps to define
who needs life insurance and at what stage of life, as well as how much is needed.
Assess your life insurance needs by walking through these easy life stages.
Taking on debt
The first form of debt that you will likely accumulate in life is student loan debt. If you are coming out of a degree program with a considerable amount of debt, you need to know that this debt will not just disappear. If you would like to avoid transferring your student loan burden to your family upon your untimely demise, consider a life insurance policy that covers the amount of your loans.
Getting married
If you are graduating from the single life and combining your financial affairs with another human, you need to consider how your death will affect your spouse. Will your spouse be dependent on your income in order to make ends meet? If so, you may want to consider life insurance to help your spouse manage expenses for the initial few years after your death or to potentially help your spouse go to back to school.
Buying a house
Consider a life insurance policy to cover your fixed-rate mortgage in order to help your family stay in your house
in the event of your death. This type of security can give them
time to grieve and plan for the future.
Having kids
Adding to the family means adding to the pool of people who will be financially
affected by your death. Consider a life insurance policy that would help your family manage until your children turn 18, and even help them pay for college. If there are people in your household who may not become independent at age 18, perhaps for reasons of mental or physical impairment, take this into account as well. Also weigh the possibility of aging parents needing to join the household.
Planning for retirement
If your kids are out of the house and your debt is paid off, do you still need a life insurance policy? Consider how many years you have until retirement, when a spouse would begin receiving support from social security. Also consider retirement goals and whether your spouse would be able to manage 20 to 30 years into retirement on your present savings.
If you’ve now identified yourself as someone in need of life insurance, what kind should you get?
According to the
Insurance Information Institute, it’s important to know that there are two types and they differ significantly.
Term life insurance is valuable if you have identified a specific period of time when you will need coverage, after which point you may not. Premiums tend to be lower.
Permanent life insurance comes in four different varieties. Premiums tend to be higher but they can be beneficial because they can be used as a savings account and can be fixed (so they will not increase if you fall ill).
In order to evaluate further after this primer, visit LifeHappens.org, a non-profit organization that provides calculators for your specific life insurance needs.
