Do You Need Life Insurance? If so, what type and how much?
As you progress through life, there will be many decisions to make, like whether you want to get married, start a family, or relocate to a new job. Life is full of trials and tribulations, and you want to be financially prepared for anything that may come your way.
Something that might have been on your mind is whether to get life insurance. Life insurance compels you to think about situations that you do not necessarily want to happen, but that you should be prepared for. What will happen to the people that are closest to you when you pass? There are a lot of options out there, and it can be mind-boggling to fully grasp.
Thankfully, highlights from the guide below will assist in helping to answer questions you might have.
If you're single with no children and no dependents, you probably don't need life insurance at all. If you have substantial assets, you may be able to self-insure. But most people fall in between and may want to consider life insurance for a variety of possible reasons, including:
Income replacement—It can be a vital resource for your loved ones to help replace your income, pay off the mortgage or fund your children's education in the event of your death.
Terminal illness—Some policies allow you to access a percentage of your policy benefit over your lifetime if you become terminally ill. The proceeds from insurance can help cover unexpected expenses or medical costs at a time most critical to you and your family.
Estate taxes—You may be able to use insurance proceeds to pay estate taxes, preserving your estate for your beneficiaries.
Own business—If you own a business, life insurance can be used to cover outstanding business loans, ensure financial stability after the untimely death of a key employee, and to provide cash needed to fund a buyout by a surviving owner.
Types of life insurance
As mentioned in the general discussion of insurance, there are two basic types of life insurance, term, and cash value. Here are some key differences to help you decide which type might be best for you:
Term insurance—the best low-cost insurance for a limited time
· Term life insurance is pure insurance. You buy a specific amount of coverage for a certain length of time, which can be from five to a maximum of 30 years.
· In general, premiums are guaranteed by the insurance company and can't be raised during the term you select. For this reason, you may want to consider buying an initial policy for the maximum number of years. You can always stop paying the premiums and cancel the coverage if your circumstances change.
· There is no cash value to the policy. If you don't use it during the term of the policy, there is no refund of your premiums.
· Term life is by far the least expensive and a good choice for young families wanting to make sure basic expenses are covered.
Cash value insurance—higher-cost, lifetime insurance with an investment component
· Cash value or permanent life insurance insures you for your lifetime. Unlike term life, there's no expiration date. If you pay your premiums, you should be covered.
· In addition to lifelong coverage, these policies also offer a savings component—a cash value. A sliding percentage of each premium is set aside—more at first, less as you age. The insurance company usually invests this money, which grows tax deferred. You can then make withdrawals from or borrow against it.
· Cash value policies are generally far more costly than term life policies but may be warranted if you have what you believe will be a long-term or "permanent" need for coverage. For example, if you have a dependent who will always need care, health concerns or other estate planning needs, this may be the wisest choice.
Source: (1) https://www.schwabmoneywise.com/essentials/life-insurance
Views expressed are as of the date indicated and are not intended to serve as investment advice, tax advice, a recommendation, offer, or solicitation to buy or sell any securities; they are based on the information available at the time and are subject to change based on economic, capital market, and other conditions. Any investment decision should be based on an individual’s own goals, time horizon, and tolerance for risk.
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