Does Life Insurance Provide Peace of Mind?

If you're wondering whether it makes sense to buy life insurance, ask yourself this one question: "Would my death leave anyone in a financial bind?" If your answer is "yes," then it may be time to get serious about shopping for coverage.

Life insurance can offer peace of mind, helping to ensure that your debts will be paid and your loved ones will be financially taken care of in the event of your death. But before applying, you may want to ask yourself how you'll qualify and the right type of policy for your budget and needs.

Who Needs Life Insurance?

If you have children, you probably need life insurance until your youngest child completes college. That way, if you pass away before your kids grow up, the life insurance would still provide for them. This is true even for stay-at-home spouses. You do valuable work around the house, which your family would need to hire for if you passed away suddenly.

Life insurance can also be valuable if you have significant financial obligations such as high credit card debt or a mortgage, You could use life insurance to ensure that debt is covered and it doesn't fall on your loved ones. In these cases, buying life insurance protects your family against the financial hit from your death and can give you valuable peace of mind.

If you're single and don't have any major financial obligations, ask if that might change in the future. You could set up life insurance at a younger age and qualify for a lower price. That way, when you get married, have kids, and buy a house, you'll already have your protection in place and won't have to worry about qualifying. Finally, life insurance could be useful for creating a future inheritance. Your heirs receive the death benefits income-tax-free.

How Much Life Insurance Do You Need?

Peace of mind comes from not just having life insurance but also making sure you have enough life insurance. If you have a family with young children, a $10,000 death benefit payment will not take them too far. One quick rule of thumb says to multiply your annual income by 10, and then adding the cost of college for any children. Let's say you earn $50,000 a year and expect college will cost $100,000 for your one child. You would need $600,000 at least in life insurance.

You could also run through a more formal needs approach. You calculate exactly how much your family would need to pay for both your immediate expenses, like the funeral and paying off debt, as well as for ongoing costs to maintain their lifestyle. A life insurance agent can walk you through this calculation. Knowing you have the right amount of life insurance can make you feel more confident about the future.

Can I Qualify for Life Insurance?

To determine if you qualify, most life insurance policies require you to undergo a medical exam. Prior to issuing a policy, the insurance company will also check things such as your medical history, hobbies, credit rating, and driving record. Factors such as age, smoking, and prior health issues can also drive up the premiums on a policy.

The younger and healthier you are when you apply, the better your chances of qualifying and at a low rate. While you can't change your medical history, you can set yourself up for a more favorable medical exam. For 24 hours before your medical exam, keep sugar and caffeine out of your system. It's best to schedule your exam early in the morning, when your blood pressure is low before the work day, and to avoid consuming anything but water for at least eight hours beforehand.

If your premiums are too high due to medical reasons or you are denied coverage, check if a group plan is available through your work. These group plans require no medical exam or physical. You could also try applying with other insurance companies, as some are more accepting than others. Finally, there are guaranteed issue policies. These policies charge more and have low death benefits. However, they do not require a medical exam.

What Type of Life Insurance Should I Get?

You should consider what type of life insurance to get for your goals. Buying the right type puts your insurance budget to the best use while properly covering insurance needs.

Term Life Insurance

Term life insurance is temporary life insurance. It lasts a pre-determined amount of time, the term. The term may be one, five, 10, 20 years, or longer. If you die during this period, your heirs receive the death benefit.

If you outlive the term, the coverage expires. You might be able to renew then, but the price will go up as you're renewing at an older age. Since term life is temporary coverage, it is less expensive to buy. Term life is best for temporary needs when you need a large amount of coverage, like having insurance until your kids grow up or you finish paying off the mortgage.

Here are the main characteristics of term life insurance:

• Temporary insurance protection
• Low cost
• No cash value
• Usually renewable
• Sometimes convertible to permanent life insurance
  

Permanent Life Insurance

Permanent life insurance does not expire and can last your entire life, so long as you pay the premiums on-time. Most permanent policies offer a savings or investment component combined with the insurance coverage called cash value. You can borrow or withdraw cash value while alive.

There are different types of permanent life insurance such as whole life, variable life, and universal life. They have different setups for the premiums and cash value. For example, whole life always charges the same premium and earns a fixed rate of interest for the cash value. Variable life lets you invest your cash value in market investments, like mutual funds.

Permanent life insurance is significantly more expensive than term. It can make sense for insurance needs that never expire, like leaving an inheritance. Permanent can also make sense if you have a larger budget and want to build future savings on top of paying for insurance.

Here are the main characteristics of permanent life insurance:

• Permanent insurance protection
• More expensive to own
• Builds cash value
• Loans are permitted against the policy
• Favorable tax treatment of policy earnings

How Can I Find the Right Insurance Company?

You could be working with your life insurance company for years, even decades. That's why can get peace of mind by knowing you selected the right partner.

When applying for life insurance, get quotes from multiple insurance companies. It's free to get quotes, and you have no obligation to sign up. You can see who charges you the best rate. If you want a permanent policy with cash value, ask for an illustration. This document predicts how much your cash value will grow over time so you can compare between companies.

You should check each insurer's credit rating. This shows whether they are financially secure and have the resources to pay out their insurance benefits in the future. You should also check each company's complaint index from the National Association of Insurance Commissioners (NAIC). This shows how well a company treats its customers.

Consider how you feel about the agent representing each insurance company. You'll turn to this person for help and advice on your policy, so make sure you get along well. Another option is to work with an insurance broker who represents multiple companies and can get you multiple quotes at once. By putting in this due diligence, you can find the best life insurance company for your needs.

The Bottom Line

Life insurance is the kind of product you buy, hoping you never have to use it. But if others depend on you, you want to make sure they're protected. By researching your options and finding the right life insurance policy, you can have peace of mind knowing you've taken care of your family in the event of your sudden death.