Life insurance can be confusing, even if you’re only trying to figure out the basics. If you need life insurance, don’t worry! This Life Insurance 101 guide will teach you all the basic terms, what type of life insurance you need, and how to purchase it so that your loved ones are taken care of should something happen to you.
The Purpose
of Life Insurance
A good life insurance policy, when purchased and
paid for on time, is there to protect your family. It will help pay for your
funeral costs and other final expenses, keep up with mortgage payments or
student loans if you die unexpectedly, or replace lost income so that loved
ones don’t have to struggle financially in your absence. Life insurance doesn’t
just benefit survivors; it can also provide financial security for you as well.
One of the
biggest decisions you’ll need to make when you start comparing life insurance
policies is how much coverage you need. Coverage amounts are measured in a unit
called dollars, and all life insurance policies have different dollars, so
knowing what those dollars represent will help you decide how much coverage you
need.
Amount to
Buy
The amount of life insurance you should have depends
on a number of factors, such as your age, income, and debt load. It’s important
to strike a balance between having enough coverage and not overspending. If you
have dependents that need help with expenses, choosing too much coverage may be
an unnecessary financial burden. On the other hand, having too little coverage
could make it difficult for loved ones in times of need. Life insurance
calculators can provide insight into how much coverage is right for you; while
they aren’t perfect predictors, they are a good way to get started thinking
about what type of policy you might want and how much it will cost each month.
In general,
experts recommend that most people get at least a 10-year term policy. This
type of policy works best for people between 30 and 50 years old who have
completed their families and don’t need life insurance long-term.
Type of
Policy
Term life insurance vs. whole life: With term
insurance, your premiums are lower than they would be for whole life policies,
which are designed to be in effect for a person’s entire lifetime. However,
with term life insurance you’re responsible for covering premiums until your
death; when you die, your beneficiary receives a lump sum payout. If your
beneficiaries don’t have enough money saved up to pay those premiums—or if
something happens to them before you die—you could be stuck paying out of
pocket. This could make it difficult or impossible for them to keep up with
their mortgage payments, rent payments, and other monthly expenses.
Where to Buy
Life Insurance
One of your first steps in purchasing life insurance
is deciding where you want to buy it. The most common way is through an
insurance agent who has built up a relationship with you and can give you
personalized, one-on-one advice based on your needs. Your other option is
online; most major life insurance companies have their own websites with quotes
and information you can access 24/7. Weigh both options carefully—including
their pros and cons—before deciding which route works best for you.
How Much
Coverage Do I Need?
There’s no right or wrong answer here—life insurance
is not a one-size-fits-all purchase. The amount of coverage you need depends on
a variety of factors, including your net worth, number of dependents, and
future expenses. There are also several types of life insurance policies that
can fit your specific needs and situation. Read more about them in our guide
below. But as a general rule, you should seek enough life insurance coverage to
replace at least 10 times your annual salary. You can read more here
our guide below will help explain what life
insurance means and why it is important for everyone with a family. Our
guideline section will give you an idea of how much life insurance coverage you
may want/need based on certain criteria along with information about basic
costs associated with purchasing different amounts of life insurance
protection.
Considerations
When Buying Life Insurance
It’s better to overestimate how much coverage you
need than underestimate it. If there’s one thing that can help provide
financial peace of mind for your family, it’s life insurance. At a minimum, you
should consider purchasing enough coverage for your family to pay off any
existing debt and continue paying your mortgage and everyday bills. Most
experts recommend having between three and 10 times annual income in life
insurance—so if you earn $100,000 per year, consider investing in at least
$300,000 worth of life insurance. Purchasing paid-up or cash-value policies can
also be helpful; these policies include death benefits as well as savings
accounts where money is invested tax-free until it is withdrawn when needed—or
paid out to beneficiaries upon death. But keep in mind that higher monthly
premiums mean higher costs over time. For more information about life
insurance, talk with an independent broker or advisor who works with multiple
carriers, which allows them to shop around for you and find a policy suited to
your needs.