Thinking about life insurance makes most people cringe. Nobody likes to plan, let alone pay, for something completely dependent on their death.
Though that time seems far away for most of us, in many cases, getting accidental life insurance quotes and then choosing a plan is the best way to protect your family in case something happens to you.
Who should get life insurance?
The easy answer here is that anyone with a family or loved ones who depend on them should get life insurance, but it is also beneficial for those with large debts or loans.
If you were to pass away and you have someone else depending on your income such as a spouse or children, it’s a good idea to invest in life insurance so they would have money to live on after your death.
The other reason life insurance may be a good idea is if you have a home mortgage or a significant amount of student loan or even credit card debt. In this case, if you were to die, you don’t want to leave your loved ones with a massive debt to pay, so life insurance is a good option.
What types of life insurance are available?
Generally speaking, life insurance can be broken down into term and whole life insurance. The main breakdown goes like this:
Term life insurance: This is the most affordable option. You pay a premium each month, and your beneficiaries get paid if you die within the term of the plan. Most plans are about 10 to 30 years, and if you outlive the plan, you can renew it year by year or start another plan.
Whole life insurance: This plan extends until you die, and it has a cash value. As long as you pay your premiums, your premium rate and the death benefit don’t change. You won’t have increases in your premium as you get older, but this is countered by a base level of higher premiums compared to term life insurance.
When looking at these two types of plans, the next step then becomes how to decide between them and which type is the most affordable in the long term.
How to Choose the Type of Life Insurance
The general recommendation is that term life insurance is the way to go for good coverage at a reasonable price. Because whole life plans are far more likely to need to pay out (because they span all the way until death), the premiums are much higher.
As far as spending the extra money on whole life insurance, though, these have a cash value and are meant to be a form of investment. However, there are better ways to invest your money.
Rather than spending more on life insurance, it’s typically better to put that extra money toward a 401(k), a Roth IRA, and other investments.
The purpose of life insurance is to replace your income, not to be an investment. So find the most affordable term life insurance plan and put the rest of your money in sound investments.
When should you buy a life insurance policy?
The younger you start your policy, the better. If you are single, you should probably wait until you have a spouse or some dependents. But after that, youth is in your favor.
With term life insurance, if you are young, you can find a variety of relatively low-cost life insurance plans. For example, Allstate has a 20-year, $250,000 plan for a healthy 25-year-old that costs $11 per month. A similar plan at State Farm is just over $15 per month.
The other point to consider is that the earlier you start your term policy, the lower your rates. If you are 25 years old and you get a 30-year plan, you can keep the same low rates until you get a new plan at age 55.
As you age, rates go up, as you are more likely to die when you get older, statistically speaking. Thus, expect the plan you get at 55 years old to have a higher rate than the one you got in your 20s.
What happens when the insurance term ends?
With term life insurance, there is a fixed term. This can range based on the company and plan you choose, but let’s say you have a 30-year plan. At the end of those 30 years, you’re still alive, so what comes next?
There is no cash value to term life insurance, so you don’t cash out any money if your term expires and you are still living. Your family only gets money if you die within that 30-year term.
So if you have outlived your plan, the next step is to talk to your company about options for getting a new plan. Price competitors for life insurance quotes to see who can give you the best rate. Make sure to go with a reputable, reliable insurance company.
Luke Williams writes and researches for the insurance comparison site, Clearsurance.com. His passions include writing about personal finance, insurance, and other ways people can save and invest their money.