It’s a simple fact of life that accidents happen, and that at some point, you’ll need to be prepared for the unexpected. This is why insurance exists. It helps you recover from accidents, injuries, and more and hopefully prevents you from needing to drain your bank account. If you’re in a car accident, you have auto insurance to help you get back on the road. If your house catches on fire, home insurance helps you get back on your feet.
It’s a little tougher to think about life insurance. Most people don’t enjoy thinking about death, especially about their own. However, life insurance provides for others in the case of the insured’s death. It can be used for just about any financial needs your family might have should you unexpectedly pass away. For example, it can help cover mortgage payments, tuition costs, or even funeral expenses. So, if you’re starting to think about purchasing a life insurance policy, you should be thinking about the people who depend on you financially first and foremost. Once you understand that, then you can figure out an amount that will adequately provide for them.
Who are your financial dependents?
Your financial dependents can include anyone, but are typically your spouse, children, or parents—anyone who depends on you financially. In this scenario, it’s helpful to tally up the amount of support you provide, which will make it easier to determine the amount your policy should provide if you pass away. (A budget makes this even easier.) If you consider your spouse a dependent, you’ll probably want to discuss how they would financially support themself or any other dependents should the worst happen.
Obviously, figuring out your dependents and deciding on a policy amount is a deeply personal choice. Some people purchase life insurance even though they have no dependents. Others add multiple dependents to the same policy. Others still figure their dependents will divide whatever remains.
How do you get life insurance?
Some life insurance policies require underwriting. Underwriting typically includes a medical exam and answering questions about yourself, which helps determine the amount you’ll pay. Unfortunately, poorer health often means you will pay more for your premium than a healthier person.
There are tons of companies that offer life insurance. In fact, you may be able to bundle it with an existing policy if you hold an auto or home insurance policy with certain companies. Of course, as with other types of insurance, we always recommend you shop around to get the best rates.
How much life insurance do you need?
Most life insurance falls into one of two categories: term life insurance or cash value life insurance. Term life is similar to other insurance policies, where you are insured as long as you pay your premium. Cash value life insurance means that some of your premium will cover the cost of your policy and some will be put into a savings account. There are many varieties of this type of policy.
Term life is usually better for temporary needs, while cash value life insurance works well for permanent needs.
Regardless of whether you choose a term or cash value life insurance policy, deciding whether you want to think of it as insurance or as an investment can help guide you to the decision that’s right for you.