A wide variety of scenarios warrant buying life insurance, but the simplest rule of thumb for determining who needs life insurance most is: Does anyone rely on your income for their financial wellbeing? This could be a child, spouse, aging parent or even the cosigner of a student loan who would get stuck with the debt if you weren’t around to pay it off.
If the answer is yes, you probably need need life insurance.
Life insurance replaces the financial support you give to others in the event you’re no longer here to provide.
You’ll notice something about the life insurance needs of parents, students, and couples: In these cases, your coverage needs won’t stay the same forever — in fact, at some point they’ll disappear. The kids will grow up and move out; you and your partner will finally pay off the mortgage; you’ll close out that student loan. At that point you might not need any coverage.
For most people in this boat, a term life insurance policy is the right choice. Term insurance lasts for a set period of time (the coverage term) and then expires. While it may seem like you’d want insurance to last your whole life, most people are better off buying an affordable term policy and investing their savings separately rather than buying an expensive whole life policy.
But even if you know you’re buying term, what is the right age to buy? Do I need life insurance at 25, 35 or 45? The simple answer is it depends on what’s going on in your life. But there are few things to keep in mind:
Buying life insurance gets more expensive with age. Each year you wait, you can expect your life insurance premiums to go up 8-10%. Once it’s in place your monthly rate won’t change, but if you buy a 20-year policy when you’re 45 you can expect to pay more than double what you’d pay at 35 for the same death benefit amount.
Holding life insurance too long is expensive While buying life insurance at 25 is certainly cheaper than getting it at 45, you may not need coverage as long if you buy it later, which could even out the cost.
You might wonder if it’s cheaper to pay $30 per month for 20 years, or $60 per month for 10 years? They’re actually equal.
By buying life insurance when you’re young you can make your insurance last longer for the money. However, paying life insurance premiums before you really need to can add unnecessary costs. Our recommendation is to buy it as soon as you have an insurable need— as soon as someone starts depending on your income — and set the term for as long as you estimate they’ll rely on you. This way you lock in the cheapest rate possible while also not spending before you have to.
- For seniors who are concerned about final expenses like burial costs and (small) outstanding debts, final expense life insurance or guaranteed life insurance can be a solution.
Life insurance comes in many shapes and sizes. Some people just want to financially protect their loved ones in case of an accident, while others may get a life insurance plan strictly as an investment with a guaranteed rate of return. To better understand what type of policy is best for you, head over to the school.
Term life insurance policies are usually the best solution for most people who need life insurance. They’re most often the most affordable, they’re simple to understand, and they provide the straightforward protection that most people shopping for a policy at an insurance company are looking for.
But that doesn’t mean that other life insurance policy types are wrong for everyone. Some people tout the benefits of permanent policies being “forced savings” for people, like a mortgage: most people aren’t great at saving for retirement, and a permanent policy provides separate cash accumulation for something they’d be paying for anyway (their life insurance policy). Simplified issue and guaranteed issue life insurance are options for people who might not be able to benefit from the paramedical exam portion of the application process. Final expense insurance is available for elderly consumers who don’t want to burden their family with burial costs.
In the end, you should speak to a licensed independent broker or agent or a financial advisor to determine which policy is right for you. Knowing the pros and cons of your choices will make you an informed consumer so you’ll be able to better understand the options you’re presented – and make the right choice for your family.