Did you know…
Among those individuals with life insurance, about 1 in 5 say that they don’t have enough.
While approximately 60 percent of all people in the United States were covered by some type of life insurance in 2018, many consumers are still confused about the types of life insurance – and how much of it they need.
In general, if you’re unmarried without any dependents, you likely don’t need life insurance. But if you are married and/or have children, you should consider having a policy in place to ensure your loved ones are financially protected in the event you suddenly pass away. If you’re still unsure whether you need a life insurance, a good question to ask yourself is: Will my death impact anyone else’s finances? If the answer is yes, a life insurance policy is a worthy investment to make.
Types of Life Insurance
Life insurance is generally split into two categories – term life insurance and whole life insurance.
Term life insurance is designed to cover you for a specific period such as 10 years, 20 years, 30 years or another term of your choice. While this type of policy is suitable for a lot of people, it’s important to remember that once the term is up, your policy expires with no payout. So, should you pass away after the term is up for your policy, no money is dispersed. In terms of cost, it’s considerably less expensive than whole life insurance because it only covers you for a specific term and doesn’t accumulate a cash value.
Whole life insurance is a type of permanent life insurance. This policy offers a “cash value” and life-long protection. So, if your premiums are paid, it provides a death benefit after you die. It can also provide a source of emergency funds. Should something go wrong, you may be able to take a loan against your policy. This type of insurance is more expensive than term life insurance – sometimes 5 to 10 times more – but it’s important to remember that it’s a cash value lasting your entire life. There is no term. It also provides more than just life insurance itself – some of your premium goes into an investment portion as well.
How Much Insurance Do I Need?
Figuring out how much life insurance you need sounds harder than it is. Once you decide what kind is best for you, a few simple questions will help you determine the amount:
- How much debt do you have, other than a mortgage? The more debt you have, the more life insurance your loved ones will need to pay it off when you die.
- What’s your monthly spending like? This will help you determine how much your family would need on a monthly basis to pay off expenses and stay afloat.
- How much are you saving on a monthly basis? Are you spending more than you’re earning? If so, you’ll need to purchase more insurance.
- How much do you need to save long-term? If you’re not saving enough to pay for your immediate future (education, retirement, etc.), you might want to consider buying more coverage.
- How much income does your family need if you’re not around? This is the most important question. The answers to the questions above will help you determine the answer to this vital question.
If you’re struggling to figure out what type and how much life insurance you need, it’s best to speak to an insurance agent to determine what’s right for you and your family. They can help make recommendations that will guide you to the right amount of coverage, without breaking the bank.