The concept of Life Insurance is simple: You buy a policy and pay the monthly or annual fees on time (a.k.a. premiums). If you die, the insurance company pays your family, or whoever you named as the beneficiaries, the amount of money specified in the policy.
This the type of policy the majority of people need, but there are also policies that allow you to access the money while you’re still alive, but let’s keep it simple by starting with the two main types you can buy:
Term Insurance covers you for a set amount of time. If you have a 20-year plan, keep up-to-date on payments, and cease to be living within those 20 years, your beneficiaries get the money. The premium can vary dramatically depending on age, health, and family history, but the standard cost for a $500,000 policy is around $50-$70 a month for 20 years.
Whole Life Insurance (a.k.a. Permanent or Universal) never expires. It’s more expensive than Term but it lasts forever. How expensive varies since they’re customized to the person being covered, but industry averages suggest upwards of 10-times a Term policy. Unlike Term, you still have the option to access the money while you’re alive, either by investing it in the stock market or taking some out as a cash loan.
Now that you understand the basics, do you need it? If you’re the main source of financial support for your household, yes. This becomes even more important if you have kids, dependents, or care for an adult with special needs. To gauge how much you need be realistic and ask yourself the following questions:
- If your family has no money coming in, how long could they continue to live in the style they are used to?
- If you have ongoing expenses, such as a mortgage or college tuition, how long could your family make those payments?
- You may have some coverage as a workplace benefit, but is it enough? It usually isn’t and if you change or lose your job, that coverage disappears.
Take a moment to think about how much you spend. The money you have, your debt situation, house payments, car payments, utilities and bills, and other expenses. Once you complete the tasks surrounding your bills and debts, you can begin to determine how much insurance you should buy.
How To Get It
We’re not gonna lie: Getting Life Insurance is a process, sometimes it can take upward of three months, which has only been made more difficult by the COVID-19 pandemic. In-person meetings, medical tests, and an approval process that was once standard might be affected, the same way every aspect of our lives have been affected. We’re all in the same boat, but now that we’re taking stock of how uncertain life can be, it doesn’t hurt to get the process started. The task below will help you get started.
If you already have Life Insurance, here are the details to share:
- The name of the insurance provider, which can be included in your contacts
- The name and contact info for your agent (if applicable)
- Where you keep the policy, which includes online portals that should be included in your passwords.
- The account or policy number (if applicable)
- Name of primary and contingent beneficiaries or dependents (if applicable)
- Type of policy, such as Term or Whole-Life
- Start and end date if it’s Term
- Tips for your family would need to file a claim
Go online and start getting some quotes. Start with companies you’ve heard of over the years from friends, family or associates, or use a site like PolicyGenius.com, which aggregates options that might be right for you.
Once you find a policy you think might work, take it to the next level and start talking with a licensed agent, whose job is to help you understand how much insurance you need in terms you can easily understand. We don’t expect you to have a policy in place by the end of the day, but putting it on your radar and taking steps toward making it a reality can make a huge difference for your family in the long run.