How to Know if You Should Have Life Insurance

While you might like to think of yourself as invincible, the reality is that death happens to everyone. It is one of a very limited set of inevitable events in life. You might already know that life insurance can help those left behind cover final expenses and pay off debts. It can also be used to cover future expenses such as college or a house. Understanding the types of life insurance and who should have coverage will help you determine if now is the right time for you to open a policy.

Who Should Have Life Insurance?

Purchasing life insurance is a personal decision that you will have to make after careful consideration. After all, it can be hard to pay hefty premium bills when you don't anticipate getting any benefits from them. You may wonder if it is better to invest the money in an emergency fund instead. Unfortunately, no one can tell you if buying life insurance is the right choice, they can only offer advice. However, financial planning experts do agree on some general guidelines about who should and shouldn't be making life insurance payments.

If someone else relies on your income to cover living expenses, whether it is a spouse, children or other dependents, then you should probably invest in a life insurance policy. The benefits will cover final expenses and provide for lost income in the event of your death. Insurance is also recommended if you have significant debts, especially if they are shared with someone else. Taking an estate through probate and disposing of assets can take time, and your obligations can fall behind during that period without sufficient resources.

At the same time, not everyone actually needs life insurance at every stage of their life. If you are young, single and without significant financial obligations, then you should definitely talk to a financial advisor before making any insurance purchases.

What Type of Life Insurance Should You Buy?

A quick recap of life insurance 101 shows that there are two main types of life insurance policies: term and permanent. Each policy has pros and cons, and choosing the right one will boil down to your financial position and needs.

Term life insurance is designed to provide a death benefit for a set amount of time, known as the policy’s term. Most people choose a term between 10 and 30 years. It is the most affordable and popular type of life insurance, and it allows purchasers to plan for a future loss of income. That makes it useful for beneficiaries to cover financial obligations like a mortgage and maintain a consistent quality of life in the event of your death.

Permanent life insurance most often refers to whole life policies, although there are other types. Benefits do not expire after a set period of time, so permanent plans offer coverage for the rest of your life as long as premiums are paid. They also differ from term policies in that they accumulate value over time. Premiums are often considerably more expensive than with a term plan, but you may be able to use the cash value to lower them in later years.

What Is the Right Age to Purchase Life Insurance?

Premiums are lower for young, healthy people, so the earlier you lock in a rate, the less you will pay. However, you also need to consider the type of policy, your overall health and your financial obligations to decide if it's time to invest in life insurance. Instead of considering age as the determining factor, look at your responsibilities and debts. If your family would struggle to make ends meet without your income, then now might be a good time. If, however, no one depends on you for support and you have cash reserves to cover final expenses, then you may want to rethink a purchase.

Life insurance provides more than a death benefit; it also gives you confidence that loved ones will be secure if something were to happen to you. If you have dependents or significant debt, you should consider purchasing a policy.