Woody Allen once wrote, “I’m not afraid to die. I just don’t want to be there when it happens.”
Understandably, death is something most of us would rather avoid altogether. And, for that reason, the subject is often hard to even talk about. But in terms of preparing financially it’s an important topic to address, especially when it comes to those left behind in the event of one’s passing.
Many people find that purchasing life insurance actually helps bring peace of mind as they make decisions regarding the future. It helps to think about it like this: If you’ve worked hard to build the quality of life you enjoy, you want to protect that for your loved ones if something were to happen to you.
According to the 2019 Insurance Barometer Report by Life Happens and LIMRA, 66% of Americans believe they need life insurance, yet only 57% actually have coverage.1
As you evaluate your own situation, here are a few questions to consider:
Do I even need life insurance?
The short answer: probably. There are plenty of factors to consider when deciding to purchase any type of life insurance. If you’re young, debt free, single, and with no dependents, acquiring a policy might not be top of mind. But know that as your life changes, your need for life insurance evolves.
If you plan to eventually get married or start a family (or both), you’ll want security for your spouse and children. Purchasing a policy at a young age could save you money on premiums because costs tend to increase with age. And as personal circumstances change, you may ultimately adjust the type of coverage appropriate for your needs. Different options provide coverage for any number of life stages. An agent can help guide you through the planning process.
How much coverage do I need?
You may say to yourself: How do I put a price tag on all of this? Valid point. And as you can imagine, ample considerations influence an appropriate amount of coverage. Easing or eliminating financial burdens (both current and forecasted) for a spouse and dependents is likely the key deciding factor. Some categories to assess:
Think about short-term debt (like credit cards), and long-term debt (like an auto loan or mortgage). The average household credit card debt is more than $6,000 and the average household carrying any kind of debt — including mortgages — is more than $136,0002. Of course, the amount of debt an individual or household carries may fluctuate through various life stages.
Look beyond the basic food, clothing and shelter needs of your spouse and family. Will there be increased childcare costs, schooling or other expenses without you? If you’re the primary breadwinner, that loss of income plays a significant role in planning.
If your financial strategy includes funding college for a child, add that to your consideration set. Student Loan Hero reported the cost of an undergraduate degree has risen 213% at public schools and 129% at private schools from the 1980s to 2018.3 Perhaps you already have a college plan started. That’s great. But think about how it will be funded without your income.
Beyond these categories, consider additional items like funeral costs or other end-of-life expenses. According to Good Financial Cents, a funeral can cost up to $15,000.4 And, depending on circumstances, accounting for quality of life and comfort for your family can help dictate a certain financial cushion. Yes, it’s a lot to contemplate, but an agent can help you calculate more accurate figures that reflect your specific situation.
When is the best time to buy life insurance?
Technically, there isn’t a definitive answer. The cost of insurance generally gets more expensive as you get older. Aging, and the associated decline in health that comes with the miles on our biological odometers, contribute to the costs you’ll pay.
Other life circumstances can affect costs as well. Your current health and health history (including your parents’ history) play a part. A medical exam and associated tests will help determine overall health. Blood pressure and cholesterol scores weigh in, so there’s no time like the present to get those numbers in line. Note: Here comes a suggestion you may or may not want to hear. If you smoke, consider this one more reason to quit. Smokers pay higher premiums for life insurance.
In addition to health, other lifestyle factors will be taken into account. Your driving record can impact more than just your auto insurance premiums, so take it easy out there. And, some people are surprised to learn, even hobbies make it into the equation. Do your weekend plans regularly include sky diving, or are your aerial interests limited to bird watching at a nature preserve?
Admittedly, there’s a lot to take in and a lot to evaluate. The good news is you may be surprised to learn how affordable many of the options can be. And, as stated early on, you may just find some peace of mind knowing that you’ve helped provide a secure financial future for your family and loved ones should anything happen to you. It’s hard to put a price on that.
Things to Consider:
• If you have a spouse or dependents, chances are you’re a good candidate for life insurance.
• To determine the appropriate amount of coverage, weigh things like short-term and long-term debt; family plans like college and retirement; daily living expenses your family could face without your income; and end-of-life costs. An agent can help with calculations.
• Don’t wait too long to take action. Not only can rates rise with age, the security that comes with owning a life insurance policy will let you focus on what’s important: living life.
1 “2019 Insurance Barometer Report,” Life Happens and LIMRA, 2019
2 "2018 American Household Credit Card Debt Study," NerdWallet, December 2018
3 "Do Millennials Have it Better or Worse Than Generations Past?," Student Loan Hero, May 2018
4 "Average Funeral Costs and Expenses," Good Financial Cents, June 2019