People ask themselves: Is life insurance really worth it?
If you have financial dependents and don’t have an incredible amount of liquid savings or wealth, then the answer is pretty simple: It’s absolutely worth the (typically) affordable premiums you pay per month.
You have to approach life insurance like you would any aspect of your life that poses a risk and ask yourself what the worst case scenario is?
For example, you enroll for health insurance on a yearly basis with your employer. Why? Because you not only have coverage needs for routine medical procedures and checkups, but you also need coverage in case you or someone in your family has a long-term illness or any other medical issue that could rack up high medical bills. Health insurance, typically paid on a monthly basis, helps make sure that visits to the E.R. or even your general practice doctor don’t cause you to dip into your emergency fund.
The same goes for dental insurance, where you’re insulating yourself from the potentially large bills that come with a couple cavities or dental surgery, and auto insurance where you’re protecting against paying for a brand new car out of pocket if you get into an accident.
If you’re on the fence about buying term life insurance, ask yourself how your family might fare if you were to die. How would they keep up with day-to-day bills? Or, how would your spouse pay for the kid’s college tuition?
Most people would agree that, without a financial cushion from life insurance, their family might face a dire money situation. That’s why term life insurance is so valuable. It’s an affordable way to financially protect the people you love.
Why Is Life Insurance Necessary?
Life insurance helps provide financial security if you were to die suddenly, so that your family won’t struggle to cover day-to-day expenses. It can help:
- Replace lost income and cover living expenses, like rent or a mortgage
- Spare your family from needing to pay off debts you leave behind
- Provide for your kids’ care if you are a stay-at-home parent
- Cover burial, estate taxes and other final expenses
- Fund college expenses
- Cover unpaid medical bills or taxes
- Create an inheritance or supplemental retirement fund through an income tax-free death benefit
Your family’s savings shouldn’t be depleted to cover those expenses.
Even if you’re a Millennial without a spouse or kids, term life insurance may still be necessary to protect your parents or other co-signers from needing to pay off the mortgage, student debt, credit card debt, or even a car loan that you leave behind. However, the key moments to consider a policy are major life milestones like getting married and having a child where you go from financially caring for yourself to needing to worry about others.
How Term Life Insurance Works
Term life insurance is one of the simplest (in a good way) and most affordable types of life insurance. It insures your life for a period of time of your choosing, such as until your mortgage is paid in full or your kids are adults. This helps ensure that none of your financial obligations will burden your family if you were to die unexpectedly during the term length.
Most insurers offer term lengths of 10, 15, 20, 25, and 30 years. You make monthly payments for the policy term, and in the event of your death, the policy pays out a death benefit to your beneficiaries.
If you are young and have many working years ahead of you, a long-term policy (30 years) might make more sense. If you have small children, the same is true. Perhaps you want your term length to end around the time your home mortgage or student debt is paid off — in that case a shorter term length might make sense to protect your co-signers from needing to take over loan repayment before it’s paid in full by you.
How Much Does Term Life Insurance Cost?
Many people don’t realize how affordable term life insurance can be. It usually offers ample coverage at a much lower premium amount than many other types of life insurance. Even if you’re slightly older, you can get affordable coverage to protect your family. A thirty-six-year-old man in excellent health can buy a 20-year, $750,000 policy for as little as $31 per month, for example. Your individual rates will depend on a range of factors including your age and your overall health. If you’re curious how much (or little) your premiums might be, you can get a free quote online.
Why Term Life Insurance Versus Other Types?
There are many types of life insurance policies. If you’re looking for a policy that offers more than $100,000 in coverage, term life insurance is usually the most affordable choice.
Another type of life insurance coverage that offers high death benefit amounts if permanent life insurance, but it’s usually far more costly. For example, a $500,000 whole life insurance policy for a healthy 35-year-old male would likely cost more than $500 per month, compared to $21 per month for a term policy.
The price difference can be attributed to the fact that permanent life insurance policies cover you for a lifetime versus a term length. They also have a cash value component that you can borrow from over time – although, borrowing from the policy cash value can reduce the total death benefit for your family.
Overall, term life insurance is a simple and affordable life insurance option. It has no investment components to track, and no cash value or loans that impact the final payout. You simply make the monthly payment, and you’re covered for the specified term length. Term life also requires only minimal maintenance – just a review of your financial needs periodically – like when you have another child or if your income increases considerably from when you first took out the policy (a good problem to have.)
In addition to affordability, term life is a product you can build on. If you start out with just $100,000 in term life insurance coverage when you’re young, for example, you’re not stuck with that coverage amount forever. Provided your health allows you to qualify for more coverage, you can continue adding term life policies as your lifestyle and situation changes. As we mentioned already, having another child might give you reason to buy more term life insurance coverage. Earning more money over time or advancing in your career is another smart reason to buy additional term coverage to replace your income upon your death.