The Importance of Life Insurance: The 7 Things You Should Know Before Buying: Life insurance is an essential part of your financial plan. It can help protect your family and provide peace of mind in the event that you are no longer around to care for them. Even if you don’t have anyone who would be financially impacted if something happened to you, it’s still a good idea to get life insurance. Even though we all know that life insurance is important, many adults feel like they’re not at risk of dying and so they probably won’t need it anytime soon. But what if you’re wrong? What if another car doesn’t see you or the other car or some crazy third factor leaves your family without enough money to pay for the things that are expensive but not urgent? Let’s take a look at why life insurance is important and the different types of policies available.
How Life Insurance Works
When you buy a life insurance policy, you’re purchasing a contract that pays out a designated amount of money to your beneficiaries in the event of your death. It’s important to note that life insurance is not meant as a way to replace your income. It’s meant to replace the services you would have provided your family in the form of child care, providing for your spouse financially, etc. The most basic type of life insurance is term life insurance. This is a pure death benefit policy. It guarantees that your beneficiaries will receive the full death benefit regardless of how long you live. There are other types of policies that provide a death benefit and extra money if you’re diagnosed with a chronic illness or become disabled. There are also policies that last your entire life.
Why is Life Insurance Important?
There are many reasons to buy life insurance. Life insurance can help replace money that would be lost in the event of a death, protect a family from becoming financially unstable or help with medical or funeral costs. Other reasons why life insurance is important is because it can help to pay off debt, fund children’s education and provide a financial safety net for your spouse when you’re gone.
The 7 Reasons to Get Life Insurance
- It Helps Pay for Expenses that Would be Out of Your Family’s Reach without You – If you die without a life insurance policy, your family’s finances will be negatively impacted. They’ll lose your income and have to pay for expenses without the same level of income. Life insurance helps ease the financial burden of a death by providing your family with a lump sum of money, which could be put towards bills or other expenses. If you die with a life insurance policy, your beneficiaries will receive the full amount of the policy and won’t have to worry about how they’re going to pay for those expenses.
- It Helps Fund Major Purchases – Major purchases like a home or car require a large down payment. Getting a life insurance policy to fund those purchases can help you get a lower interest rate on your loan and put less money out of pocket for your family.
- It Can Help with Young Children – Let’s say you have a child who is too young to work, go to school or have a full time job. Your child may not have the ability to fully provide for themselves, or even get the same job you have after you’re gone. You can get a life insurance policy that pays out a large amount of money over a long period of time to help your child get the care they need, go to school or get a job.
- It Can Fund Education for Your Older Children – In addition to helping with young children, some life insurance policies can also help fund your older children’s education.
- It Can Cover Your Partner’s Debt – If you have a lot of debt, then your death could negatively impact your partner’s finances. Your death could mean that your partner has to pay off your debt, which can have a negative impact on their credit score, their financial stability and their ability to take care of your children.
- It Can Cover Your Health Care Costs – Some life insurance policies can also help cover the costs of health care. It could help with the costs of long-term care, prescription medications and other health-related items.
Types of Life Insurance
There are three main types of life insurance: term, whole life and permanent life insurance. Term Life Insurance is the most basic type of life insurance. It’s a pure death benefit policy that will pay out a specified amount of money to your beneficiaries in the event that you die. Whole Life Insurance is an investment policy that combines a death benefit and savings account. Permanent Life Insurance is also an investment policy that can be set up to last your entire life.
When Should You Buy Life Insurance?
There’s never a good time to get life insurance. You should always be prepared for the worst and get enough insurance to cover your family’s expenses in the event of your death. If you already have a policy, you should reevaluate its amount to make sure you have enough coverage. If you don’t have a policy, now is the time to get one. The best time to buy life insurance is before you need it. If you’re really worried about losing your income, you could also get term life insurance on your children to help pay those expenses. No matter what, it’s never too late to get life insurance even if you have a preexisting condition.
How Much Should You Get and What Type?
The first thing to do is figure out how much coverage you need. You should calculate how much money your family would need to survive if you were to die. If you want to cover any debt, like student loans or credit cards, you should add that to your total. You also need to account for inflation. You don’t want the amount of debt to go up as prices rise. Once you know how much you need, you can decide how much life insurance you need to get. The most important thing is to get the right amount of coverage. If you get too much coverage, you could pay more in premiums than you need to. If you get too little coverage, your family could struggle without the money.
Final Words: The Bottom Line
Life insurance is an essential part of any financial plan. While it can never fully replace a loved one, it can help ease the financial burden left behind. It can provide funds for your family’s expenses, fund major purchases and help pay off debt, fund your children’s education and cover the costs of health care. The best time to get life insurance is before you need it. If you wait until you have a preexisting condition, it could be more difficult to get coverage.