Let’s not sugarcoat it: Handling life insurance is about 180 degrees from fun. And it tends to crop up as a to-do at inconvenient times.
“When you’re getting married, buying a house, having kids, life insurance becomes important, but it’s not likely top of mind when you are going through such a big life change,” says certified financial planner Levi Sanchez, founder of Millennial Wealth in Seattle.
In fact, a December 2018 survey from industry group LifeHappens.org found that just 4 in 10 people have life insurance to protect their family, and about one-third of Americans said it was a low/no priority item when starting a family.
But ignoring life insurance is serious ball dropping. “Just ask yourself what would happen to your family if you died,” says Sanchez. (The odds may be low when you are young—but they aren’t zero.)
A 2018 survey from insurer Bestow found that nearly 6 in 10 people said they don’t have life insurance because they think it is too expensive. Good news: The type that you likely need, called term insurance, is not a budget breaker.
If you’re 30 and in good health, we’re likely talking less than $10 a week for a term life policy that would pay out $500,000 if you died before age 55. If you’re 40, a $500,000 policy that lasts for 25 years might run you $10 to $15 a week.
That’s doable, right?
Getting a policy doesn’t have to be painful, either. Online life insurance sites such as Quotacy, Policygenius, and QualityTermLife make the process easy, handling the comparison shopping for you among multiple life insurers.
All insurers ask some basic health questions. Depending on the size of the policy, an insurer may insist on checking your vitals. This is done at no cost to you: A med tech will swing by your home or office, draw some blood, check your weight and blood pressure, and be gone. You can also check out a newer breed of online term insurance providers, including Bestow, Ethos, Haven Life, and Ladder, that don’t require a medical exam for most applicants.
Here’s how you can cross life insurance off your “I Really Should Deal With This” list.
If there’s anyone who relies on your income—a partner or spouse, kids, or parents or sibs you help out—you need life insurance. If you don’t have any dependents, you’re less likely to need life insurance.
But there are exceptions. One to consider: If your private student loan debt isn’t eligible for a death “discharge,” you might consider a term life insurance policy to cover the debt. Otherwise, a relative or friend who cosigned for you could be responsible for the balance. (Federal student loans are wiped out in the event the borrower dies.)
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There are two main types of life insurance: term insurance and permanent insurance. Term insurance, as its name telegraphs, is active for a set number of years. A permanent policy lasts until you die and then hands over the policy’s death benefit—the dollar value—to your beneficiary.
The advantage of term is that it costs a fraction of permanent policies. (Sure, permanent policies offer an investing component, but with the lower cost of term you can invest the money you’re saving on premiums.)
And you likely only need life insurance for a specific term, not forever. The 20-25 years it might take to raise your young kids into self-supporting adults, or the decade or so to crank on building your net worth.
As a starting point, clients in their 30s should have a minimum of 10x the family’s annual income needs, according to Cheryl Krueger, founder of Growing Fortunes Financial Partners. That can help your loved ones cover their bills for a long time. If you want to potentially cover the cost of college, you will likely want more.
Don’t rely on life insurance through work. Many employers offer a basic life insurance benefit for free to employees. It’s typically for $50,000 or maybe a year or two of your salary. That’s way less than the 10x or so you probably want to start with. Moreover, you typically can’t keep the insurance when you job hop.
If doing this math feels daunting, no worries: Online tools can help you figure out what you need. Or you could hire a financial planner to help you run the numbers.
No matter your preference, you have a bunch of options. And you’ll finally get to check this one off your list.