Think you’re too young (or too old) to have life insurance? Not only can life insurance be a saving grace should something unexpected happen, but insurance benefits can be part of an overall smart financial planning package that can help protect your assets and provide an extra cushion when you need it.
How does life insurance work? Essentially, you pay premiums to an insurance company that, upon your death, will pay a benefit to your beneficiaries – those you decide should receive the money. The death benefits that are paid out are normally free from taxation. Different types of life insurance with different types of benefits are available to most people.
If You’re Elderly
Life insurance policies are available no matter what age you are. Even if you think you’re too old and it’s too late to get insurance, it’s really not—there’s even life insurance for seniors over 85 available. You can still purchase “whole” life insurance plans, which will pay out a cash benefit, tax-free, to the named beneficiary. Monthly premiums do not increase and the policies do not expire, no matter the age of the policyholder, as long as premiums are paid.
If You’re Young
If you don’t think you’re not old enough or you don’t have any dependents, life insurance is still a good idea. The optimal age to buy life insurance is actually under 35, making it an item that should be on the radar for millennials, though they are also the least likely to have the extra funds to purchase it.
But there are multiple benefits to adding a monthly life insurance premium to your budget even when you’re young. If something happens to you unexpectedly, you don’t want to leave your family with funeral expenses. While the average life expectancy in the United States was 78.6 years in 2017 – and most of us expect we will reach or exceed that age – unintentional injuries, such as those caused by car crashes, account for the third leading cause of death for any age. If we haven’t lost someone close to us, we all know of people who have lost their lives tragically and too early.
The cost of a funeral can be difficult for families to weather. Most services will cost between $7,000 and $10,000, even with the option of cremation, and if your family is not in a position to absorb the expense, it’s best to have life insurance to help avoid putting that burden on them. Life insurance also can help resolve debt that you’ve accumulated, such as a car loan, student loans, or credit card debt.
But the benefits go beyond helping your loved ones manage expenses in the event of your death. Life insurance can replace income lost by your death, which is particularly important if you have dependents such as young children. It provides financial protection to your family for a designated period of time – as in “term” life insurance – such as ten years or more. This insurance can also be a less expensive option than other types of insurance for those who are just starting out their careers, with fixed premium payments.
If You’ve Got Kids
If you’re a parent and you want to set your kids up for financial success, there’s life insurance for kids available. In the case that something should happen to your child, you’ll have the funds necessary to pay for funeral and burial costs. Furthermore, children’s life insurance policies are whole life and have cash value, meaning the policy acts as a savings account. It can be used to save money for your child’s future—like to help pay for their college.
Besides the immediate benefits of kids’ life insurance policies, there’s another notable benefit later on. If a child has life insurance, it guarantees that they’ll have coverage when they’re older. Even if they end up with poor health later on or have a pre-existing condition, they’ll still be able to get life insurance coverage, while many other adults with those same conditions may have a hard time getting coverage or will pay much higher premiums.
Life insurance for kids can be incredibly cheap, too. There are some policies that start at just $4 per month for $10,000 in coverage, making it a reasonable investment for almost any income level.
If You’re In Midlife
“Universal” life insurance is another type of coverage that is designed to provide long-term income replacement and is also a way to transfer wealth to beneficiaries. As in whole life insurance, one of the other benefits of this type of insurance is the ability to take loans or withdrawals from the accrued account value. So, this type of policy is also a kind of insurance policy within an insurance policy.
Remember that unpaid policy loans will decrease the total value of the policy, but the policy will stay in effect as long as the cash value of it still covers the policy’s expenses. The policy grows in cash value with each premium payment and earns interest, and the death benefit either grows or remains the same. The premium payments are generally flexible, meaning they can change over time, and the cost is more expensive than some other types of life insurance.
Combination Life Insurance
“Combination” life insurance offers a hybrid type of coverage, offering long-term care insurance within a life insurance policy. Combination coverage helps offset the cost of either a chronic illness or injury, such as managing the expenses of a nursing facility, within a traditional life insurance policy. The long-term care rider will allow for a percentage of your death benefit to be used for monthly care, and then the overall death benefit is reduced by whatever is spent on your care.
This benefit is only available in whole or universal life policies, but not term life insurance policies, and it will increase the cost of your insurance premiums significantly.
The right coverage for you and your family may change over time, but it’s worth looking into this important protection, both to benefit you and your loved ones in the long run.
Check out this life settlements FAQ as an additional resource:
Author’s Bio: Morgen Henderson is a lifestyle, business, and finance writer. She loves helping others improve their lives and is always looking for ways to improve her own, whether it be through relationships, finances, or any other means. In her spare time, you can often find her testing out new recipes in the kitchen and exploring the globe. Check out more of her work.