The decision of whether or not to take out life insurance is a tough one. It is, after all, yet another expense to take on. Below is a very general discussion on when you should get life insurance. For a more in depth analysis, you should consider talking to a licensed insurance agent.
The main deciding factor in whether to get life insurance or not is whether anyone depends on your income to survive. You have to decide if the people who depend on you would need money in the event of your death.
What Is Your Life Situation
Below are a few different life situations that you might find yourself in and Tina’s opinion on your insurance needs.
Single With No Dependents
If you are single with no kids or dependents, then life insurance is probably not needed. You have to make someone the beneficiary and if nobody needs your income, it really is not needed. This changes if you are obligated to people in some other way however. For example, let’s say someone you know cosigned on some loans for you, student loans are a good example. What would happen if you were to die. The creditors would come after your cosigner. In this case, it would be responsible for you to have life insurance in at least the amount of the outstanding loans.
Single With Dependents
If you have children or other dependents, you probably need life insurance. If you were to die today, would they be able to provide for themselves. If not, then life insurance would be a smart choice.
If you are married you may or not need insurance. If your spouse needs money from you to get by, then yes, you should consider life insurance. If they have their own, well paying career then no you probably do not need it. This does not mean that it should not be a consideration though. A life insurance policy could be a nice gift to those you love, making their life more comfortable.
Married With Dependents
If you are married with dependents, then you probably need life insurance. If your spouse has a high paying job and can afford to care for your dependents by themselves then you may be able to do without it, but it should still be considered. The stress of becoming a single caregiver to dependents can be harsh and while money does not cure everything, it helps.
How Much Life Insurance Do You Need
If you have no dependents, you should at least have enough life insurance to simply cover the cost of your debts. Include any loans or obligations that could be passed on to loved ones or cosigners and the cost of your final burial.
If you have dependents, it gets a bit more complicated. Ten times your annual income is a good starting point but there are more things to consider.
If you have a lot of debt that could be passed on, you will want to add that in to the amount you need. Look at credit card debt, car loans, your mortgage, student loans, etc.
If you have children, yet another future expense that must be accounted for is the cost of college. Wouldn’t it be nice to make sure that this expense is covered for them.
- Final Burial Costs
With the average funeral costing nearly $10,000, before the plot or final resting place purchase, burial costs must be considered.
- Your Age
The younger you are, the more potential income that you need to replace. Also, if you are younger you probably have more debt, less financial assets and more years of dependent cars. As you get older, your life insurance requirement will get less.
- Your Lifestyle
You probably will want your family to keep living in the same style as they did when you were around. Take into account your current lifestyle and the ability of your dependents to carry on.
What Type Of Life Insurance To Get
There are a lot of different types of life insurance policies on the market. Because of this, you should consult an insurance professional for advice on your particular situation.
That being said, most people will opt for the simplest and often cheapest form of life insurance, term life insurance. With this type of policy, you are paying for the potential death benefit only. It is set for a particular term, up to 30 years, and you make a set payment every month. It might cost as little as $40 a month for a healthy individual to obtain a $500,000 term life insurance policy.
Another type of policy is a whole life policy. This is a much more expensive policy that can cost as much as 700 dollars a month or more. This type of insurance will have the same death benefit of a term life policy but will also have a cash value. A portion of the premium that you pay each month will go towards a cash benefit. As the policy ages, more and more of the premium will go towards that cash value. Whole life polices are much more complex than a term policy and also much more expensive. For most people, they are not a good idea.