For something as important as life insurance, it’s essential you get both the right kind and the right amount of coverage. So what’s the smart way to buy life insurance? It’s all about working with someone you trust.
Do You Need Life Insurance?
For most people, life insurance is a crucial, must-have kind of coverage for real financial peace. In exchange for your policy payments (also called premiums), your life insurance provider will pay a death benefit to your family when you die. And yes, we know that’s a heavy word.
But don’t let some far-off future event keep you from seeing the value of getting life insurance today. If you have a spouse, dependent child or anyone who relies on your income for living expenses, this is coverage you need.
Buying life insurance is on the same list with getting things like a will or opening retirement accounts—it’s stuff everyone needs, but few enjoy thinking about. While getting the right life insurance in place can feel hard, a little effort here pays off big time in the form of peace of mind for you and your family.
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Which Type of Life Insurance Should You Buy?
When you’re looking to get life insurance, there’s only one kind worth even considering: term life insurance. Let’s see why.
Get Term Life Insurance
The name “term life” means it’s a policy that gets you death-benefit coverage for a set amount of time. Often, it’s for 10, 15 or 20 years. But it can be longer (it all depends on your age, that of your dependents, and where you are in your financial journey). If you die during the term, the insurance company will pay your beneficiaries (fancy talk for the ones you love) whatever amount you’ve settled on in your insurance agreement.
Because term life insurance has only one purpose—to pay out a death benefit when you die—buying this kind of policy is way more affordable than a permanent plan. And that’s not surprising when you realize most of the features of permanent plans are there to pump up your premiums.
Avoid Permanent Life Insurance
As the name implies, this is coverage that lasts throughout your lifetime. There are three main kinds of permanent life insurance, each one a slightly different form—whole life, universal life and variable life insurance.
We know the word permanent might sound reassuring, but it’s not an advantage in this context. Because the need for life insurance doesn’t last forever. That’s why term coverage is the best solution—because it allows you to decide how much (and for how long) you want coverage, while only paying premiums for a set term.
As you move toward financial independence, you’ll have fewer people depending on you for living expenses and less need for a life insurance policy. The goal is to become self-insured over time through a mix of emergency savings and retirement accounts.
Permanent life insurance tries to do too many things at once. It takes two legitimate needs—the need for life insurance and the need for an investment plan—and mashes them up into a hot mess. Those who sell this kind of policy will offer you a chance to build up savings in the plan, called cash value. The money in that account is built up as the company takes a part of your sky-high premiums and invests those funds.
But it’s a terrible plan: Not only are the premiums far higher because of the investment piece, there are also many better places to invest that will help you get way better returns on your money.
Permanent insurance policies are a huge rip-off. They’re the last thing you should be buying if you’re trying to protect your financial future and build wealth. Stick with term life insurance, which is designed to do one simple thing—replace your income in the event you die.
Consider No Medical Exam Insurance
In the past, getting life insurance meant going through a complete medical exam just to apply! You had to do a drug screening, get on a scale, and even have your blood drawn. But during the coronavirus pandemic, touchless exams and no medical exam policies have become more common. For customers who want to skip medical exams, it’s now possible to get rates for life insurance just as good as those available through options that require a medical screening.
How Much Life Insurance Coverage Do You Need?
We can’t say this part too many times: The purpose of buying term life insurance is to replace your income if you die. That’s it. So plan your coverage accordingly. (This handy calculator can help you get a more specific number.)
The rule here is to buy 10–12 times your income in life insurance coverage.
And don’t get thinking that little policy you were offered through your workplace will do the job—those typically only replace around a year’s pay. Beyond the meager coverage, you’ll lose workplace coverage if you have to quit your job because you’re too sick to work. We’re talking about a life-insurance strategy that’s too thin and has too many strings attached. The people who rely on your income today are going to need more substantial and guaranteed coverage when you’re gone.
Maybe you’re the main provider for your household. That means you’re responsible for the groceries in the fridge and keeping the heat on in the house. If you suddenly vanished from the picture without a good term life policy in place, the survivors could be forced to sell their house to carry on.
Your untimely death shouldn’t equal their bankruptcy. Getting enough life insurance coverage in place is essential to guarantee your loved ones have a shot at a relatively stable lifestyle going forward.
This isn’t limited to just you or your spouse. If you’re married, you both need to get term life insurance coverage. And yes, stay-at-home parents need it too.
How Long of a Life Insurance Term Should I Buy?
This is no time to skimp. After all, with term life you’re already saving a bundle just by avoiding those ridiculous permanent plans.
Then think about this. Say you’re young and healthy, so you decide you’re good with getting just a 10-year policy. If you happen to experience new medical issues later, that could make you more expensive to cover next time you want to get coverage. What’s more, future medical conditions could rule out life insurance completely.
So here’s the rule for how long to set your term: it’s however many years you think you’ll need until your kids will be living on their own. If you plan on adding children in the next few years, a 30-year plan could work well for you. If you already have a few kids in the house and you’re pretty sure you’re done, a 15- or 20-year plan is the way to go.
Get Term Life Insurance in Place Today
Even though getting life insurance can feel tedious or even depressing, it doesn’t have to be that way. And getting it taken care of matters. Because even when you’re gone, the people you care about will still be around. By getting term life insurance in place today, you can know regardless of what comes your way, they’ll have what they need in your absence.
Whether you want to buy life insurance, or you just want to know if you have the right kind, contact our friends at Zander. Their trusted professionals will serve your every need and help you find a term life policy that’s perfect for your family.