3 Tips for Reviewing Your Life Insurance Needs
Ah, life insurance. The one thing everyone needs but no one wants to think about. What’s more depressing than inevitable shuffling off of one’s mortal coil? Regardless, stuff happens and it’s important to be prepared.
When you’re thinking about your loved ones and the future, you probably want to make sure everyone’s protected. While there are a lot of ways to do that, life insurance is a great way to start.
Here are 3 tips for reviewing your life insurance needs:
Do I even need life insurance?
Despite the majority opinion, life insurance is for more than people with six kids and Bill Gates-sized estate. While having a family or owning property may make the decision easier, getting life insurance is a good decision for anyone who has taken on debt.
Yes, that means you too, students. If you have taken out student loans to attend college, you will want to think about purchasing a cheap term policy to cover the cost of your loans. If not, your parents may end up dealing with their grief and your debt if something happens to you.
How much life insurance should I get?
Your life insurance needs depend largely on your own life situation. For instance, you’ll need to consider what kind of debt you are carrying, what investments you hold, how much you spend every month, and who you will be supporting after you’re gone. It may take you a while to work through all the information but it’s not rocket science.
Mint is a free money management tool offered by Intuit that can help you sort out some of the information. Plug in all your numbers so you can build a financial snapshot of your life right now. This will help you piece together what you’ll need to support your family in the event of a tragedy.
What kind of life insurance is the best?
There are a few different kinds of life insurance but the big ones are whole life and term life insurance. Whole life insurance acts as both life insurance policy and investment product for those wishing to earn a little bit of tax free interest.
These policies accrue a money value and, depending on your policy, may be cashed in or borrowed against. As long as you pay the premiums every month, the rates remain fixed and the policy lasts the length of your lifetime.
Term life insurance policies make the same monetary payout when you pass away, but are designed to cover you for a fixed number of years. These policies tend to be more affordable at first, but can get more expensive as you get older. Buying term insurance with a long term can be a smart move when you’re younger because you’ll get more coverage for less. Term life policies do not hold a cash value but tend to be more affordable than whole life insurance.
When you’re deciding on what kind of policy is best for you and your family, rest assured that most households do best with a term policy. For many families, life insurance needs are pretty straightforward: it’s important to make sure the family is financially stable in the event of an unexpected death.
Term policies are cheaper, offer more protection (initially) per dollar, and are more flexible. You can take out a 20-year policy to ensure payout while you have children in the house if you know your kids will need long-term support after you pass.
Whole life works for people who have larger estates and are looking for ways to invest money tax free. It is also good for people who know they will need long term life insurance coverage at a fixed rate. For instance, parents of children with severe disabilities may need to ensure they have a policy locked in at a fixed rate that will pay out, regardless of age at death.
Think about your own life insurance needs, and then buy a policy that meets those needs.
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