Recently, while on my way home from work, I heard on NPR radio that one insurer was offering up to a 15% discount on life insurance if you were to wear a Fitbit and let them track your daily exercise routine. The more you exercise, run, walk, the more of a discount you’ll earn.
Yet according to the same NPR report, the new generation of potential policyholders are not biting. Life insurance ownership is at the same level it was in the 1970s. And that’s despite the population growing by 20% since then.
Does declining ownership mean life insurance is not a necessity anymore?
In short: no. What it really means is that we all need to educate ourselves more on why life insurance is valuable and when its many benefits are most needed to protect your family.
As I explained before, insurance is a defense against misfortune. Misfortune to you, your family or your resources. I have a life insurance policy which is equivalent to 6 years of my gross annual income.
If I die now, this will help ensure that the mortgage is paid off, my 1-year-old child has sufficient saving for his college and, most importantly, my wife and son can have sufficient income going forward by properly investing the money.
We have a chalked out an investment strategy to sustain my family in my absence.
Sounds good? It is. Sounds obvious? It’s that too. Here are a few places to start when looking into life insurance to protect your loved ones.
Let’s explore the elements of life insurance
What is life insurance?
Life insurance is a misnomer. It’s actually death insurance because it protects your family financially in the event of your death when they are most dependent on your income. You pay regular premiums to ensure your family gets a benefit payout if you die.
Why is it needed?
Life insurance helps ensure your family is financially cared for in the event of your passing. While there is no fix for the emotional distress of losing a loved one, at least your family can rest assured knowing that there’s a life insurance policy in place to help cover everything from final expenses to day-to-day bills like the mortgage.
This is a must have if you’re the only breadwinner for your family. And life insurance for stay-at-home parents is not a bad idea, either.
Do I need a life insurance?
If you have people who depend on you, you need life insurance. It’s as simple as that.
Life insurance is essential if you have:
- A spouse who relies on your income
- Children to financially support
- Cosigned debts that would be left to family to pay off
- No money for final expenses
If you have young children, you should have a policy in place that would cover them through college (even if your spouse earns). That’s a pretty hard and fast rule as far as I see it.
You can easily determine if you need life insurance, and if so, how much, by using a free online life insurance calculator.
Am I adequately covered with employer-provided life insurance?
Life insurance through work is a great perk, but it often leaves you underinsured. Most employer-sponsored policies are at most, one to three times your income with an option to purchase more.
If you have financial dependents, most experts recommend having coverage that’s 5 to 10 times your annual income.
If you are young and healthy, purchasing an individual life insurance policy outside work is often much more affordable because you’re no longer paying a group rate, which is basically a number the insurer comes up with so they are comfortable covering everyone in the company at the same price.
Additionally, employer-sponsored coverage doesn’t go where you go. If you change jobs, you’ll have to pay quite a bit more money to take the policy with you, if that’s an option.
For most people, an individual life insurance policy offers the most value at the best price.
What are my life insurance options?
There are several types of life insurance options that basically all fall under two categories: term and permanent.
Term Life Insurance
I recommend term life insurance because it’s the most affordable type of life insurance out there. Like the name implies, it covers you for a set term length – 10, 15, 20 or 30 years.
For example, a healthy 35-year-old man could purchase a 20-year, $500,000 Haven Term policy for $21 a month. You pay a set monthly premium for the duration of the policy, and you’re covered.
If you live past the term length, you can choose to extend your coverage (but will be paying significantly more since you’ll be older) or coverage will end.
Ideally, by this point, your kids will be out of the house and all your significant debts will be paid off so that you’re no longer in need of coverage.
A good place to begin is with a life insurance quote online.
Permanent Life Insurance
Permanent policies come in two main types: whole and universal.
Both types of insurance cover you for a lifetime and have a cash value component that can be borrowed against over time.
But, policy loans will impact the death benefit total. Loans also reduce the policy’s cash value, which could increase the chance of the policy lapsing.
Cash value insurance policies cost significantly more than term life insurance because they cover you for your entire life. In my opinion, the rate of return from a cash value insurance policy may not be worth the extra cost.
I suggest opting for a term policy and then regularly investing the difference in stocks/funds.
How much life insurance do I need?
Let’s start by answering a question with another question.
How much money would your spouse and children need to cover expenses if you were no longer around?
Most experts recommend five to 10 times your annual income in coverage. When choosing the amount of coverage for your life insurance policy, take into consideration whether it would be enough so that your family could cover the mortgage and other debts, child care, income replacement, college expenses, day-to-day bills your family has.
A simple way to determine how much coverage you need is to use an online life insurance calculator.
Where can I buy a life insurance policy?
Buying life insurance is easier than ever with life insurance startups entering the space. Haven Life, a sponsor of this post, is the first to offer term life insurance entirely online and, for qualified, healthy applicants between 18-45, without a medical exam. Also, they’re backed by MassMutual, a trusted insurer with more than 160 years in the industry.
You can easily go to the Haven Life’s site, get a quote (and compare pricing to other insurers) and apply entirely online. You’ll find out immediately whether you’re approved for coverage and if so, can start it that day.
No phone calls, faxes or document scanning necessary.
Life insurance is a valuable financial product and now, thanks to companies like Haven Life, it’s easier than ever to get affordable coverage for your loved ones.