When to Buy Life Insurance
Life insurance is often overlooked, yet it is an important component of financial planning. It provides a financial safety net for families and loved ones after a person’s death. Many people find that purchasing life insurance earlier in life is advantageous.
Buying life insurance often coincides with major life events. Changes in your financial status or anticipating being the financial provider for a new dependent may be an opportune time to find a policy.
Key Takeaways:
- Life insurance becomes increasingly important as people get older and have more dependents.
- Major milestones, such as marriage or having children, often prompt individuals to consider life insurance.
- Buying life insurance when you are younger and in good health generally offers advantages.
- There is no one-size-fits-all life insurance policy. Evaluate your goals and compare different policies from different providers.
When to Buy Life Insurance
Premiums for life insurance are affected by health conditions, habits, occupation, and other factors. It’s often best to purchase life insurance when you are young and in good health. The sooner you buy life insurance, the more affordable it may be.
Jamie Bosse, a senior advisor noted that, “we insure a lot of things in our lives without giving it a second thought—our homes, cars, jewelry, and bicycles … when it comes to insuring our biggest asset, ourselves and our ability to generate income, many people are extremely underinsured.” Besides replacing income, life insurance can replace “the care you are providing” to loved ones “in the event that you are no longer around to provide” that care.
Premiums may be less than expected for younger people. Temporary term life insurance is especially affordable if purchased at a young age.
Younger, healthier individuals typically qualify for more favorable policy terms and are less likely to be rejected due to medical issues. Permanent policies that last your entire life can build cash value.
Having cash value grow earlier allows more time for it to increase due to compounding, providing additional funds for long-term financial goals.
Remember that your specific premium costs will be based on the results of your personal application. Costs are also likely to differ from company to company. The data above assumes the policyholder is generally healthy and does not use tobacco products.
How Major Life Events Affect Coverage Needs
Buying life insurance when young and single helps cover final expenses and debt. However, major life events often create a greater need for life insurance.
When You Marry
Marriage is often a time when someone may become financially dependent on you. Life insurance can provide protection and replace your income, which can help your partner take time off work to grieve. With new expenses, debt, and increased responsibilities, it’s essential to ensure both partners are adequately protected.
Tip: A common guideline is to buy at least 10 years’ salary in life insurance coverage.
When You Have Kids
Having children is a significant life milestone that often indicates it’s time to consider life insurance. Children are entirely dependent financially while they are young. Families may face new expenses if one parent dies, such as childcare costs if a stay-at-home parent needs to enter the workforce.
Families with young children can often benefit from purchasing term life policies, which are usually more affordable and provide adequate coverage. Term policies provide income replacement for each spouse. Since term is more affordable, you can buy a large death benefit to cover your family’s needs.
Important Note: It is more important to get proper coverage first for the parents.
When You Buy a Home
Purchasing a home is a significant financial commitment. Life insurance can help cover costs associated with a mortgage, maintenance, and other expenses if you pass away. This can provide stability during a difficult time for the family.
As Your Family Grows Older
Life insurance premiums tend to increase as the policyholder ages, but even as your family grows older, it becomes more important than ever to provide financial security in the event of your passing.
Consider using life insurance to cover final expenses or provide an inheritance. Also consider life insurance for elderly relatives, such as parents, who need coverage. Their permission is needed to take out a policy.
Deciding Between Term Life vs. Permanent Life
Once you’ve determined the best time to buy life insurance, you can begin evaluating which type of policy to choose.
Term Life Insurance
Term life insurance provides coverage for a specific period, either for a set number of years or until the insured individual reaches a certain age. During this term, the premium remains constant. If the insured dies within the term, the provider pays the death benefit. The coverage expires when the term limit is reached.
Term life insurance policies may have the benefit of renewability, often without a medical exam. The policyholder can extend the policy at the end of the term, but will need to pay more expensive premiums to renew at an older age.
Some term policies can be converted into a permanent policy without another medical exam.
Term life insurance policies start out less expensive than permanent life insurance. They are a solid way to protect your family during early adulthood and when raising young children.
Permanent Life Insurance
Permanent life insurance covers the insured’s entire life as long as premium payments are made. Buying a permanent life policy while young allows you to lock in lower premiums. The prices do not increase as you get older, as they do with term life insurance.
Permanent life insurance also has a cash value component. A portion of the premium payments goes toward the cash value, typically in a separate account. Policyholders can take out loans against the cash value or receive dividends, providing extra money for expenses and financial goals.
There are multiple types of permanent life insurance with different setups for premiums and cash value growth, including whole life, universal life, and variable life. It’s often a good strategy if you have extra money in your budget and want to use your policy to build wealth on top of the death benefit.
Choosing between term or permanent life insurance depends on age, health, family plans, ability to pay premiums, and personal financial goals. Be sure to compare quotes from multiple providers.
What Type of Life Insurance Is Best for a Family?
There’s no single best type of life insurance for every family. Term coverage offers a large death benefit at an affordable cost, while permanent coverage can provide long-term inheritance and build cash value.
Should I Change My Life Insurance Policy When My Kids Turn 18?
You may choose to change or cancel your life insurance policy when your youngest child turns 18. However, taking on a new policy when you’re older may require higher premiums.
What Factors Influence Life Insurance Premiums?
Several factors influence the cost of life insurance, including gender, health, occupation, hobbies, tobacco use, and driving record.
The Bottom Line
Life insurance allows individuals to pool risk. In return for regular premiums, the insured individual is covered by a larger death benefit paid upon their death. Life insurance benefits are crucial for families. Taking out a life insurance policy when young may offer lower premiums. The premiums tend to rise as the insured gets older and faces health concerns.
It may become especially important to consider life insurance at major life milestones such as marriage, the birth of a child, or buying a home. Review your life insurance policy regularly and update it as needed or if there are significant changes in your family.
