There are a lot of ads proclaiming that you need to get life insurance, and they make a compelling case. Life insurance can be a large part of estate planning and protecting your loved ones if something were to happen to you. And still, you may find yourself asking “okay, but do I need life insurance? And if you do need it, what things should you think about in selecting a plan? Here are 5 things to consider in answering these questions.
Do I Need Life Insurance?
1. Do people depend on my income or rely on me financially?
If you are married, have a partner, or have children, the answer to this question will be yes. If that’s the case, then you should absolutely consider investing in life insurance. Life insurance will help cover living and household expenses for your family, and even if you have adult children can help pay for college costs or support a disability or healthcare expenses.
2. I don’t have dependents, should I still consider life insurance?
If you do not have dependents, there are many instances where you still may need life insurance, as your death will financially impact people in your life.
You own a business.
If you own a business, life insurance can provide the cash needed to dismantle or sell it, or to provide a co-owner the money necessary to buy out your half of the business.
You have a lot of debt.
Debts you owe at death must be paid by your estate, and if you have any co-signed debt, your co-signor becomes solely responsible for them after you die. Life insurance can provide the cash needed to cover paying off your creditors, and take away the burden of paying off any co-signed loans from your co-signor.
Funeral expenses cost on average between $5150 (for cremation) and $7640 (for burial). Even if you think you don’t need life insurance because you don’t have dependents, own a business, or have a large amount of debt, you might consider getting “final expense insurance”. This will cover your burial expenses without financially burdening your family. Additionally, they tend to be more affordable because the benefit they cover is much less than what typical life insurance pays out.
If you have a large estate (federal estate taxes apply to assets totaling more than $11.7 million), your heirs may be subject to an estate tax when you die. Your life insurance policy can provide the funds to cover these taxes.
3. When should I invest in life insurance?
If you’ve decided that there are enough situations in your life that would benefit from life insurance, you should consider signing up for it. The younger and healthier you are when you sign up, the more affordable your policy will be.
4. What type of policy should I get?
There are two main types of life insurance to consider– term and permanent.
Term Life Insurance
Term life insurance covers a specific amount of time. It pays your beneficiaries only if your death occurs during the term of the policy (but the term can be up to 30 years). You can purchase life insurance to cover the amount of time in your life when your dependents or family are most dependent on your income. A lot of people purchase a policy that cover their life until their retirement benefits kick in, their mortgage or other debts are paid off, or their children have grown and can provide for themselves. Term life insurance tends to be much more affordable.
Permanent Life Insurance (also known as Whole Life Insurance)
Permanent life/ whole life insurance covers a person until the end of their life and pays whenever the policyholder dies. These policies are much more expensive, but the premiums can stay stable even as you get older. This is because the premium charged is much higher in the early years than what would be necessary to pay a claim, but the insurance company invests the money and then uses it to supplement the premium in later years. One additional benefit of permanent life insurance is that after these overpayments reach a certain amount, they must be available to you as a cash value rather than continuing with the plan.
5. How much life insurance should I buy?
In considering the amount of life insurance to buy, start by thinking about why you need it in the first place.
If you have dependents, how much money would be needed to support your family? Most life insurance policies are for a multiple of your salary and are designed to provide several years of replacement income. However, make sure to consider any other benefits that might be lost when you die, such as health insurance or retirement subsidies, in choosing your policy.
If you have a business, how much money would be needed to sell it or purchase your portion of the ownership?
If you have a lot of debt, how much money would be needed to cover them?
In many cases, life insurance proceeds will be available more quickly than other assets if they are being passed on via your will. Therefore, life insurance can be vital for more short-term expenses to pay bills and taxes before other assets can be utilized.
What happens if a life insurance claim is denied?
When someone decides that the answer to the question “do I need life insurance?” is a resounding “yes”, and they pay into this policy throughout their life, they have the expectation that their loved ones will be taken care of if they were to pass away. Unfortunately, life insurance claim denials are more common than you may think. If a life insurance company has denied your claim, all is not lost. Reach out right away for a free consultation with an ERISA lawyer about appealing the denial and getting you the benefits you truly deserve.