No one likes to think about life insurance in their twenties or thirties. After all, no one expects to die within that age range. Why think about death when you can think about how to live instead?
Still, you know what they say about death and taxes. If something happened to you today, and you left behind a ton of financial obligations, then what? That’s where life insurance comes in. But before you start Googling “life insurance,” here’s what you need to know about it.
Think of Life Insurance As a Help, Not a Burden
When you shop for life insurance, remember that you do it for your peace of mind. If there are people who’ll be financially burdened when you’re gone, insuring yourself is a good idea.
For example, let’s say you co-signed your student loan with your parents. If you had a major car accident before the loan is fully paid, your co-signers will be the ones who’ll take up your debt. This debt can be alleviated by life insurance.
The same goes for your children and spouse. If you’re the main breadwinner, your family can benefit from life insurance in case something happens to you. Essentially, life insurance in these cases is an investment, rather than a cost.
And even if you’re young, healthy and have no financial dependents, you’ll still want to consider life insurance. After all, someone still has to pay for your funeral expenses, whether you’re their main source of income or not.
There’s More Than One Kind of Life Insurance
Okay, we’re going to get a little technical here, so buckle up.
There are many types of life insurance, but you only need to know about the four basics:
- Term. Term life insurance covers a limited period, usually between 10 to 30 years. This is one of the most commonly used policies, because it has relatively low premiums. The downside to term life insurance is if something happens to you after the specified term lapses, your beneficiaries won’t get anything.
- Permanent. Permanent life insurance, also known as whole life insurance, is in effect for as long as you’re alive. The premiums are fixed and are a little higher compared to that of term insurance. But at least your beneficiaries are guaranteed to get something of value when you’re gone.
- Variable. Variable life insurance is a type of permanent life insurance. Its value is pegged on that of an index fund, which is made up of stocks, bonds and other types of investments. So if the markets are up at the time of your death, your beneficiaries will gain a hefty amount. But if they’re down, well, let’s just say your beneficiaries will get a little less cash than they would’ve liked.
- Universal. Universal life insurance is another form of permanent life insurance. You’ll see a lot of variations on this type, but its most distinguishing feature is the flexibility of premiums. You can pay more than usual this year, and a little less than usual the next, depending on your needs. However, the cash value — the liquid portion of your death benefit — won’t go below a specified level.
To Get the Best Coverage, Ask a Lot of Questions
As you can see, life insurance isn’t the easiest to navigate. But if you know what to look for, even the most sophisticated policies won’t be able to bamboozle you. So when shopping for insurance, remember to ask the following questions:
- Who are your beneficiaries? Are you their main source of income or not? If something happens to you today, will they be significantly affected money-wise?
- Are you healthy and fit? Or do you suffer from any medical condition that can incapacitate you in the future?
- How much can you afford to set aside for premiums?
- How much is your total debt? If something happens to you today, will your life insurance be enough to cover that debt, and then some?
- If you’re considering variable life insurance, are you comfortable with the idea of leaving your money to chance, since index funds fluctuate in an unpredictable way?
- Is the insurance policy as simple as it needs to be? Or is it saddled with a lot of unnecessary terms you don’t understand?
Admittedly, life insurance isn’t the most pleasant thing to mull over. After all, it makes you think of the guy with the hood and sickle. But if you don’t want to think about the Grim Reaper, at least think about the people you’ll leave behind when the Reaper does come for you.