Unlike typical things you buy and pay for in monthly installments — a house, car, plasma TV — life insurance is something that you buy and hope to never use. And yet, it can offer resounding peace of mind.
The way it works is that you purchase a policy with x amount of coverage, and then pay a premium each month to ensure that, should you die early, your loved ones will receive the coverage, known as a death benefit. By doing this, you ensure that your loved ones will be financially cared for in case you die and they are still financially dependent on you.
Who Should Purchase Life Insurance?
Life insurance should be considered an essential purchase for any adult who has family or loved ones who depend on them financially, or who would pass on significant debt to loved ones in the event that they die unexpectedly. This includes:
- Parents of young children – Who have children that are financially dependent on their salary for basic things like food and shelter
- Parents of older children – Whose children depend on them to pay for college, and other things
- People who are married – Whose spouses would take a financial hit if the other died
- People who are single – Who have children, brothers, sisters, parents, etc. who would benefit from a life insurance payout
- People with debt – College students who have significant student debt, people with mortgages or business loans, anyone with outstanding significant debt that would pass on to their loved ones
- People who don’t have money to cover funeral/burial expenses – Life insurance is often purchased to make sure the cost of burial/funeral doesn’t get passed on to loved ones
As you can see, the list is varied and shows how life insurance can essentially benefit many adults in different situations. The bottom line is that losing a loved one can be hard, but being saddled with a heavy financial burden can make the loss even harder. Life insurance can’t guarantee that anyone will stay alive forever, but it can help alleviate the financial burden.
The ultimate reason that any of the above people get life insurance is because it offers peace of mind, the knowledge that their loved ones will be taken care of financially during a very difficult time.
Which Type of Life Insurance is Best for Peace of Mind?
There are two main types of life insurance: term and whole. Term life insurance is purchased for a specific number of years. During that time period, you pay monthly premiums to the insurer in return for the guarantee of a death benefit to be paid out to your beneficiaries upon your death. When the term is over, so is the coverage (though you do have options — check them out in our blog post about what happens after term life insurance coverage ends).
Permanent life insurance is a little more complicated. It offers a death benefit, but with no expiration date, and there is also a savings component known as cash value.
When it comes to buying life insurance with the goal of peace of mind, neither term or permanent has a distinct advantage over the other. The choice depends entirely on your own personal and financial situation.
For many, permanent life insurance is not an option due to its high price tag. Term is much more affordable — and it accomplishes the basic goal of taking care of your loved ones financially. For those who can afford permanent life insurance, the question becomes one of financial planning and whether permanent life insurance can be a good way to cover your loved ones while making a sound investment. You can read more about it in our blog post about whole life insurance as an investment.
How Much Life Insurance Do You Need to Achieve Peace of Mind?
Life insurance is effective if you get the right amount. If not, your loved ones will find themselves short and the peace of mind you craved will have been false. There are different methods for calculating how much life insurance you need.
- Standard of living method – How much money will your loved ones need to maintain their standard of living if you die? Remember, this isn’t just for one year, but it’s for however many years your loved ones will be financially dependent.
- Financial obligations method – Forbes recommends asking yourself which financial obligations you want your death benefit to cover. Income replacement, mortgage and other debts, college tuition, weddings, etc. — add them all up. If you have any savings, you can subtract that from the total, and presto: you have arrived at the amount of coverage you need.
- Funeral coverage – If you only need life insurance to cover funeral expenses, your calculations will be a lot easier. According to Lincoln Heritage Funeral Advantage, the average cost of a funeral and/or burial ranges between $7000 and $12,000. Your life insurance coverage need not exceed that.
Life insurance can’t prevent disaster, but it can offer you peace of mind knowing that your loved ones will be taken care of in the event of your death. Whether you choose term or whole life insurance, it doesn’t matter, as long as you achieve your goal of offering financial coverage to your loved ones.
At the same time, it’s important to choose the right policy for you — this will ensure that you’re making the wisest decision and leaving as much as possible for your loved ones. As is the case with all big financial decisions, it’s best to consult with an insurance or financial advisor to make sure you choose the life insurance policy that’s best for you.
Still have questions? We have answers! Read on to find out more about life insurance and peace of mind.
How does life insurance help in ensuring peace of mind?
Life insurance offers a death benefit to your loved ones in case you die. The cost of the death benefit comes in the form of a monthly premium, and the specific amount of the premium depends on many factors (type of life insurance, your age, health, location, and more). As long as you pay the monthly premiums and your policy term is valid, your loved ones will receive a death benefit payout from the insurance company in the event of your death.
While no one likes to contemplate their own mortality, the death benefit makes it a little easier knowing that you won’t leave your loved ones financially abandoned or saddled with debt. In this way, life insurance offers peace of mind.
What is the best age to buy life insurance?
There are no hard rules when it comes to life insurance, but the generalization is that it’s better to buy life insurance at a young age. The reason for this is simple: monthly premiums rise with each passing year. You’ll pay more at age 31 than at 30, etc. Therefore, buying life insurance at a young age can help lock in good rates.
Of course, if you have no need to buy life insurance at a young age, you may put it off. However, if you are a:
- Student with loans
- Someone with no money to cover funeral expenses
- Some with debt
then getting life insurance is a good idea, regardless of how old you are.