Death, unfortunately, cannot be avoided. We all have to make tough decisions about what we want for our future, too.
When it comes to life insurance, most of us do not want to get stuck on the details, but there are financial needs that every family has to think about.
If you are at that point in your life when you are constantly thinking about the future, you can take a proactive step to protect it with a plan that gives something back.
Why Insurance Right Now?
Every family needs to be taken care of. There are always bills and unexpected expenses, as well as large purchases that need to be made to move forward. Other people are better prepared for what life brings because they took action and made a plan.
Did you know that the younger you are, the lower your premiums will be? However, everyone can use an insurance plan to cover what they need. Here are some key takeaways to understand first about buying a policy:
- Your policy is an agreement for your insurance company to pay you a specified amount in the event of a death of the insured party
- Your premiums must be paid up to date to receive the payout
- Policies help you plan for an unexpected loss and give your family financial protection
There are two different types of policies: whole or term. These policies may also provide you with more cash value, investing the premiums you pay into the market, while other policies will not pay unless your death happens within a certain time frame.
You should look for a whole policy if you want a full life coverage. Term only provides you with coverage during a specific time limit. In addition, you need to check that the policy does not require you to have a medical exam if it lapses or expires. You should be able to renew your policy without having to go to a doctor, in which case your policy could have higher premiums or you may be denied.
Before getting into how much insurance you need, it’s important to think about these different plans and what matters most to your family. Have you done a full inventory of bills and future expenses?
How Does Age Change Insurance Costs?
Many people believe that you can’t get insurance when you are older because of life expectancy and health risks. While insurance companies do make money by betting on how long you will live, they also provide insurance policies to people of all ages. Young or old, you need to be prepared for what might happen.
There have been cases of age discrimination for insurance in the workplace. While young people are slated to live longer, companies still have to pay out all the time for those who suddenly pass on. Typically, premiums do increase as you age due to increased risk, which is why starting your plan when you are young is so imperative.
However, you should never buy insurance because you are scared of not qualifying later in life. It’s completely safe to wait until you have something to protect to get insurance. By your late twenties, you should start thinking about your financial future and possibly invest in a policy so that you can cash it out if you need to as well.
Should You Get a Cash-Value Policy?
Policies can be cashed in after you have paid in for long periods of time, leading to a large lump sum that can be used for big expenses such as a house down payment. These are called cash-value policies, and they may work better if you are young.
You can build up your capital while gaining interest through cash-value plans. There are some dangers according to analysts for cash-value policies though.
Insurance companies use your premiums to invest in the market and they pay you back in interest, adding to the value of your policy. While it is not the best way to invest, especially if you want to see higher returns, these cash policies may help those who do not have savings or financial discipline.
What Should You Consider for Calculating Life Insurance?
So now that you know a little bit about the policies and what they cover, you can evaluate how much insurance you need. A large part of picking a policy is looking at the financials for your dependents. Then, you can accurately suggest a face value for your policy.
Start with Your Debt
All loans, mortgages, credit cards and other debts have to be paid first, as these can pass on to your loved ones. If you have a $300,000 mortgage and a $55,000 car loan, then you know that you already need at least $355,000 to cover your debts. You also have to think about interest and fees, so it’s best to take out more on top of the raw numbers.
Replacing Your Income
Where would your family be if your income went away entirely? How much do you make per week or by the month? It’s important to look at how much you make per year and then calculate costs for how many years you want to cover your family. For example, if you are making $50,000 a year, and you want your family to be secure for 10 years, then you would add another $500,000 to your policy.
Another way to think about it is by estimating how long you’ll be alive. If you get a policy young while you are making $30,000 a year, and you know that you will live at least 25 more years, then your policy may be for $750,000 or more depending on how much you want to cover.
You may also want to protect your family against inflation, and there are stipulations for how much of your policy should also be invested. It’s likely that once you add in other costs, such as appointing a trustee and stipulations for investing a portion of the policy, that you will need at least $50,000 or so more.
Helping Your Dependents
The people in your life matter to you, and it’s important that you cover them. After your debts and replacing your income, is there more that you have to pay? If you planned for your children to go to college, or you were supporting a small business for your spouse, then you also need to consider additional funds to cover those expenses as well.
Quick Summary of Considerations
- Insurance policies do have limits and you will need to provide proof of why you need a larger policy
- You can carry as much as you need to pay off any bills, debts, expenses, and interest
- Your policy needs to be large enough to cover all of your dependents, such as future college tuition
- Plans should include coverage for your funeral expenses
- If you need to appoint a trustee, then your policy should cover the cost as well
- You can choose between whole, term, or cash-value insurance policies depending on your financial needs and the time period that you need it in
- Almost anyone can get an insurance policy, whether you are young or old; health conditions may make your premiums go up, however
In Conclusion: Start Planning Today
You never know what can happen, and that’s why insurance can protect you. If you calculate your insurance needs now, you can work with an agent to come up with the most affordable plan that gives you exactly the coverage you need.