We’ve all heard the commercials on the radio or TV about life insurance, but more often that not, we just dismiss them as being for older people, or people with families, or even just a scam. But life insurance isn’t just for anyone – it’s a real opportunity to protect your friends, family and loved ones from the financial burdens they can face when something unexpected happens.
So today we’re going to try to demystify life insurance and help you to understand why it can be a good choice regardless of your situation.
What is Life Insurance?
Life insurance, simply put, is an agreement between an insurance company and an insured. In exchange for a monthly premium – which is determined based on a range of factors including your current age, health conditions, etc. – the insurance company agrees to pay out a specified amount in the event of the insured’s death. For example, an insured may have a $250,000 policy that costs a set amount each month, and will pay $250,000 to their beneficiary – a parent, spouse, or child, for example – upon their death.
There are two primary types of life insurance (and many other less common types): term policies and whole life policies.
Term Life Insurance – this type of insurance covers an individual for a set period of time (e.g., 20 years) with a set benefit if they pass away during that time period. Term insurance is typically much more affordable than whole life insurance, especially for younger policyholders.
Whole Life Insurance – this type of insurance covers an individual for the rest of their life, whether it’s 20 years or 50 years. The individual pays a set monthly premium for an amount that will be paid out to their beneficiaries when they pass away.
Why should I get Life Insurance?
The number one reason to get life insurance is to protect your family in the event of your death. Protect them from what? A number of things:
- Funeral expenses
- Unpaid debts
- Loss of income (particularly if you are the sole provider)
Life insurance can give your family the time they need to grieve and heal from losing their loved one, without having to suffer the stress and frustration of financial hardship along the way.
Common Myths About Life Insurance Answered
- I’m young and healthy, why do I need life insurance? Even if you’re a millennial, life insurance may be a great option for you. First and foremost, the younger and healthier you are, the lower your premiums will be – you are more insurable, so the cost of insurance will be cheaper. And also, any debts you do have (including student loan debt) may still pass to your family if something unfortunate happens. Life insurance can help ease that burden.
- I have a pre-existing health condition, so I’m not insurable. Chances are good that, even with a serious health condition, you can still obtain life insurance to protect your loved ones in the event that you pass away and leave medical bills and other expenses behind. Your premiums may be higher, but many insurance companies specialize in working with high-risk policies for individuals that have health conditions or other major risk factors.
- I have retirement savings that can cover my expenses if I pass away. While many tax-advantaged accounts do offer payouts to your beneficiaries in the event of your death, these benefits are still taxable. In most cases, life insurance benefits are totally tax-free, meaning that your beneficiaries will receive a greater benefit if they lose you, which can help to eliminate any lingering financial burdens and expenses.
If you’re still hesitant about life insurance, that’s okay. We encourage you to simply talk to your insurance agent about whether life insurance is right for you – and you can get a quote to see exactly how much a life insurance policy would cost you.