Nobody wants to think about that.
Probably the last thing you want to think about, especially if you’re young — well, anytime, really — is your own mortality. The next to the last thing you may want to think about is the prospect of buying life insurance to prepare for when you do pass away. You may view thinking about “what happens after” as morbid or depressing. What you may not realize is that the whole concept of life insurance is geared toward the living. Life insurance is a way to help protect those you love who might find themselves in a financial bind as a result of your death.
Okay, we’re talking about it.
There are two main types of life insurance, whole life and term life, with variations in each that make them suitable for different purposes.
Whole life insurance:With whole life, you pay premiums throughout your life, and when you die, the insurance company pays your beneficiary (if the benefit is payable under the terms of the policy). This is what many people think of when we talk about life insurance; money to help pay for the deceased’s funeral and other final expenses.
Term life:As the name implies, term life is life insurance that lasts a set amount of time; for example, 10 or 20 years. You pay the premiums for the length of the term, and if you die within that term, the company pays the death benefit (if payable under the terms of the policy) to your beneficiary. If you live past the term, some policies may allow you to renew the term or your insurance agent may present other options to you. This type of life insurance may be used to help fulfill needs that will exist for a fixed period of time.
How do I know which type to buy?
Better questions: “What needs do I want to help fulfill? What are my financial goals? What is my budget?” If you aren’t quite sure how or where to start in answering those questions, consider the four most common financial needs your loved ones may face when you die:
Final Expenses —This is commonly the first major expense your family will face when you die. Life insurance can help them pay for your funeral and burial; today, the average cost for a traditional funeral is between $7,000 and $10,000.1 And consider this: The average American dies with an average of $62,000 of debt.2 Depending on the amount of your death benefit, this type of life insurance may also help pay debt you accrued.
Mortgage —Your home is your biggest asset and usually the largest continuous expense a family has. Home prices vary widely depending on where you live, but the median price for a home in 2020 is $274,600.3 What is the amount of your mortgage and how many years are left to pay on it?
Income Replacement —Life must go on, and now your loved ones are responsible for the household expenses they depended on your income to cover. One study showed that 74 percent of all employees say they live from paycheck to paycheck, and even families with incomes exceeding $100,000 are not immune.4
Education —It’s every parent’s dream to give their children the best education they can afford. Setting aside money for this purpose can help provide your kids with the skills they need to achieve success as adults, but it doesn’t come cheap. Although tuition and fees vary, the average cost of tuition and fees for the 2019–2020 school year was $41,426 at private colleges, $11,260 for state residents at public colleges ($27,120 if from out of state).5
Some life insurance policies can help you meet these goals for your family if you aren’t there to provide for them. If you’re the type who likes to do research, information on the various forms of life insurance is easily searchable online. When you’re ready, contact a licensed insurance agent who can help you choose the type(s) of coverage to best meet your needs and your budget. Then be sure to review your coverage with your agent at least annually, or after life events such as marriage, the birth or adoption of a child, divorce, a promotion at work, and other events that may have an effect on the coverages you’ve set up.
- Parting, Funeral Costs: How Much Does an Average Funeral Cost? (August 20, 2020)
- CBS News, Americans are dying with an average of $62,000 of debt (October 7, 2020)
- USA Today, Despite coronavirus, low supply and high demand buoyed first-quarter home prices (May 6, 2020)
- MarketWatch, A shocking number of Americans are living paycheck to paycheck (August 21, 2020)
- U.S. News, What You Need to Know About College Tuition Costs (August 21, 2020)
Categories: insurance, life insurance, whole life insurance