Why Everyone Should Consider Life Insurance

According to a 2024 study, about 51% of Americans have at least one life insurance policy – but in this day and age, that percentage isn't nearly high enough. Why? Well, this means 49% of Americans don't have any sort of life insurance policy. In other words, this large group of people doesn't have a financial cushion for their families in the event of an unexpected death.

While thinking about an early death and the corresponding backup plan isn't exactly fun, it's a huge step when it comes to your family's financial planning. Keep reading to learn more about the importance of life insurance and how it can give you and your family more financial wellness and peace of mind.

What is Life Insurance?

Life insurance is a binding contract between an individual and an insurance company. In this contract, the insurer guarantees to pay a sum of money to the individual's beneficiaries when this insured person passes away. To lock in this benefit, the insured will pay premiums to the insurance company during a specified time period or their entire life.

There are two main types of life insurance – term and permanent. Term life insurance policies expire after a certain amount of time. On the other hand, permanent life insurance policies will remain active until the insured person dies, surrenders the policy, or stops paying premiums.

Term Life Insurance

While it will depend on your particular policy, term life insurance policies usually last for a 10, 20, or 30-year term, and you will choose which term works best for you and your needs. The best term policies are affordable, yet still offer long-term financial strength.

Level term is the most popular type of term life insurance, and it pays the same death benefit throughout the term, no matter when you pass away. Here are a few other kinds of term policies:

Convertible term: This policy will allow the policyholder to convert it to permanent insurance.
Decreasing term: This coverage decreases over the life of the policy at a predetermined rate.
Renewable term: With this option, you'll get a quote for the year you purchase the policy. Then, when you renew annually, the premiums increase. In the first year, this is the least expensive option.
Some terms expire at a certain age, like when you reach 65 or 70.

Permanent Life Insurance

While permanent policies cost more, they will last your entire life or until you stop paying the premiums or surrender the policy. Here are some of the most common types of permanent life insurance:

Whole life insurance: With this option, the death benefit and the premium usually stay the same throughout the length of the policy. It also includes a cash value component similar to a savings account. This allows you to take out loans or even pay the premiums after a certain point.
Universal life insurance: With this form of permanent life insurance, the cash value component earns interest, and premiums can be adjusted over time. You'll also be able to choose between a level death benefit or increasing death benefit.
Indexed universal life insurance: This universal life policy will let you earn an equity or fixed-index rate on the cash value component.
Variable universal life insurance: You'll be able to invest the policy's cash value in a separate account, and it also has flexible premiums and either an increasing or level death benefit.

Key Reasons to Consider Life Insurance

Even if you're young, healthy, and aren't expecting the worst, there are many reasons to consider life insurance. You can read more about these reasons below:

Protecting loved ones: If you have children, a spouse, or other dependents who rely on your income in any way, you need a life insurance policy. As they are grieving your death and adjusting to their new reality, the last thing they should be doing is worrying about paying the mortgage, putting food on the table, or finding a higher-paying job.
Income replacement: Life insurance safeguards against an unexpected loss of income (see income protection). Without your income, your spouse could be struggling to make ends meet between child care, a mortgage, and other living expenses. At the very least, your life insurance policy can cover expensive funeral costs, which often come as a surprise.
Peace of mind: Ultimately, life insurance is about peace of mind – knowing that even if you aren't around, your kids and family will be cared for financially. A life insurance policy ensures that your loved ones will have their needs met and, at the bare minimum, can afford funeral expenses and other costs resulting from an unexpected death.

Benefits of Life Insurance

Outside of caring for your family and giving you less stress, there are many benefits that result from a life insurance policy, including:

Tax advantages: Life insurance premiums go in tax-free, and your beneficiaries do not have to pay taxes when they receive benefits. With many policies, you are giving yourself a tax-free savings or investment account that grows with time. It's a win-win, and a great way to build generational wealth.
Estate planning tool: Life insurance is essentially an effective estate planning tool, and it really simplifies the transfer of wealth to your beneficiaries. You can rest easy knowing that everyone will have an equal payout, and it will also help your loved ones take care of estate taxes.
Supplemental retirement income: Many adults fear they won't have enough retirement savings to last for their entire retirement years. Life insurance with a cash value alleviates this fear – you can access the cash value if you need additional funds to supplement your retirement income.

Who Should Get Life Insurance?

While life insurance is essential for anyone who has loved ones and substantial income, here are some of the people who need it most:

Individuals with dependents: If you have kids, a spouse, or other family members dependent on your source of income, life insurance is vital to guard the financial future of your family. If you ever pass away unexpectedly, the policy would ensure they have enough to get by for several years afterward.
Single people with debt: Even if you don't have dependents or a spouse, life insurance can help settle your debts after you pass away.
Business owners: If you have a business, a life insurance policy will make sure your employees or partners are taken care of after you're gone. You can also take out life insurance on your key employees so that if they pass away, you have the funds to keep going without them.
Elderly individuals for end-of-life expenses: If you're approaching the end of your life, life insurance is paramount. End-of-life expenses stack up, from long-term care and medical bills to funeral expenses. Your life insurance policy will help take care of these expenses for your relatives or children.

Determining the Right Life Insurance Coverage

So, which type of life insurance is right for you? The short answer is that it depends – on your financial situation, the kind of coverage you want, and your age.

The first thing you should do when considering life insurance is to take a good look at your financial needs and liabilities. Do you have a mortgage? Do you have children? What is your current income? Ideally, you want your life insurance policy to cover about 10 to 15 times your income. This way, your family can get by comfortably for several years after you pass away.

You should also consider your current financial situation and how much you can afford in monthly premiums. If money is tight, consider a term life policy, which is more affordable than permanent policies. If you want to lock in a lower rate over time, consider a whole-life policy to save you cash in the long run.

Many factors, like income, debts, and age, might influence your coverage amounts. For example, older people may not need as much coverage since they have more savings for retirement. On the other hand, the primary breadwinner with four children and a mortgage may need much more coverage to cover all these expenses.

Ultimately, the type of life insurance you choose should be about you and your situation. However, always look for reputable insurance companies with good reviews, showcase a firm financial footing, and have several different policy options.

Overcoming Common Misconceptions

There are several myths when it comes to life insurance – learn about the misconceptions versus the facts below!

Myth: Life insurance is only for healthy middle-aged adults.

Fact: Life insurance is necessary for many people in different age brackets. And while getting a policy if you are younger and healthier is easier, there are many policies suited to different needs. Although premiums may be higher for those with preexisting conditions, many insurance companies have policies that accommodate various life stages – getting quotes from multiple companies can be helpful for this reason.

Myth: I don't need life insurance if I don't have kids or a spouse.

Fact: Life insurance isn't just for people with families. It's also great for single people with lots of existing debt since the policy can help pay off the debt. However, it's also worth noting that life insurance may not be necessary if you are single without large debts.

Myth: My debts will be forgiven when I die, so I don't need life insurance.

Fact: Not necessarily. It really depends on the types of debts you're carrying. For example, federal student loans will be forgiven after you pass away, but this may not be the case with private student loans. It's essential to ask your lender what their policy is when it comes to debt forgiveness after death – this will also help you gauge just how much life insurance you need.

Myth: Life insurance is too expensive.

Fact: Many people overestimate the cost of a life insurance premium. You might be surprised to learn that a healthy 30-year-old could potentially get a premium as low as $13 per month – this is for a $250,000 policy for 20 years. Depending on the type and coverage you need, life insurance can actually be very affordable.

Myth: I don't have an income, so I don't need life insurance.

Fact: This isn't always true. For example, if you are a stay-at-home parent, you may not be bringing home a paycheck, but your domestic labor might be worth a lot. The cost of childcare is astronomical, so if you typically take care of the kids on a full-time basis while your spouse goes to the office, they would need to deal with the cost of daycare if you ever passed away. This is why a life insurance policy can be highly beneficial for stay-at-home parents.

Conclusion

The importance of life insurance cannot be understated – this insurance policy will cover your family's financial wellness if you ever pass away earlier than expected. It could potentially pay off their debts, keep the roof over their heads, and ultimately, give them the financial well-being to grieve comfortably without dealing with financial stressors.

If you're interested in learning more about life insurance and which policy is right for you, contact Think Life today – we'll be with you every step of the way.

Frequently Asked Questions

What is the main purpose of life insurance?

Life insurance's primary purpose is to give financial security and independence to the policyholder's family in the unfortunate death of the policyholder.

What is the risk of not having life insurance?

The most significant risk of not having life insurance is the financial burden that your family may have to deal with after you pass away, especially if you are the primary breadwinner or contribute to your family's finances in any way. Without a life insurance policy, your family may have a lot more added stress when you die.

How much is $100,000 in life insurance a month?

The average cost of this coverage is $10 per month for term life and $200 for whole life.