You can’t control when you die. But you can manage if people who rely on your income will be left without money with which to live.
When do I need life Insurance?
You only need life insurance when people rely on your income. You don’t need life insurance if you’re 24, in college, and have no wife or children.
Who Needs It?
Anyone with children or a wife whose lifestyle would suffer from your death needs life insurance. If you’re a single income family, your insurance must cover for the opportunity cost of your wife’s time. Without her, you’d be paying for daycare, cleaning, and other expenses.
On average, stay-at-home moms spend 94 hours working. If you want an actual dollar amount, you can visit mom.salary.com.
What Affects Cost?
Your health and age are directly correlated to how much you pay. If you get a 30-year policy at age 30, your policy should be cheap. You pay higher costs as you age because you have a higher probability of dying.
Health: if you drink heavily and eat poorly, your wallet will take the hit. Smokers pay on average three times as much as nonsmokers for the same policy. Your work conditions and skydiving habits will raise your premium. Any health issues also increase your premium. Cancer and other preexisting severe conditions used to decimate your chance of coverage, but no insurers will cover conditions such as alcoholism and others after a certain clean period.
How much?
You want to buy enough to cover your salary if you die, so you should buy a policy that’s 10-12 times your income. The payout would cover any childcare costs, debt, your mortgage, and give your spouse time to find a good job.
Beneficiaries
The beneficiary clause determines who received money after a claim. It’s vital you keep this updated in case of a death, marriage, or divorce. Many people forget to change their beneficiaries after significant life events, and all the money you verbally promised your second wife is designated legally to your first wife. You can add multiple beneficiaries (such as children) or contingent beneficiaries (if this happens, the money goes to this person) in case your primary choice dies before you.
If you name a minor as a beneficiary, you should appoint a guardian, so the child doesn’t spend the money frivolously.
Whole Life vs. Term
Term life insurance provides coverage for a set number of years. Term insurance is cheaper than whole life because you have to renew after a set time when your premiums will be higher. The death benefit can be paid out in a lump sum, monthly, or an annuity.
Whole life insurance costs more because you’re buying it to cover the rest of your life, so you lock in prices, and because it’s designed to build cash value. Whole life can cost 6-10 times a term policy for the same amount of death benefit coverage.
You should buy term insurance to cover as long as your children depend on you. Once they’re grown and don’t rely on you financially, you only have to support your spouse.
Group Insurance
You can get insurance through a group, such as a lawyers group or through your employer. This is a great benefit, but make sure it’s enough to cover your family. Also, compare rates. If the majority of other employees are extremely unhealthy and you aren’t, you’ll foot the bill for their bad habits.
Life insurance doesn’t have to be a headache. Talk to your agent and pick the plan that fits you.