Financial Wellness
10 Tips to Get Started With Life Insurance
Many people recognize the need for life insurance, but they don’t take the next step because they may not have enough information to feel confident. Here’s what you should know.
1. If you have dependents, you need life insurance
If you have children or other loved ones who depend on the money you earn, you need life insurance. Its primary purpose is to protect your income. Life insurance helps your dependents keep on living as they would, if you were still earning a paycheck.
2. There’s an easy way to evaluate how much you might need
If you’re looking for a reasonable estimate on the amount of life insurance you should buy, experts recommend a coverage amount equal to ten years of your income. Keep in mind that your life insurance needs may change over time for a variety of reasons, so you may want to reevaluate your life insurance periodically to see if you need more coverage.
3. Some life insurance is better than no life insurance
If the strategy in #2 doesn’t work for you, a good starting place is coverage that equals any outstanding debt (including mortgage, car payments, and student loans) plus five years of your annual salary. Use the average American salary in 2020 of $ 49,764 to represent your income in your estimate, if you’re a stay-at-home parent or currently in-between jobs.
4. Life insurance is less expensive than you think
Many people can get term coverage from a reputable company for a surprisingly low price. However, life insurance does get more expensive as you get older. It makes sense to buy as much as you may need while you’re young and healthy.
5. Life insurance is a smart financial move
You can expect to pay about one percent of your annual salary on the annual cost of term life insurance. Spending one percent of your income to protect years of income is a pretty good deal.
6. Make sure you know how much life insurance you get through your employer
Look carefully at the amount of coverage your company may provide. Then, consider buying additional life insurance, either through benefits plans at work, or on your own, to make sure you have the right amount of coverage for your unique needs.
7. Life insurance needs change over time
Say you decide to expand your family, get a new job, or move into a new home, for example—those life changes may impact your life insurance needs. Review your protection during your benefits enrollment period at work or when you receive your Social Security statement in the mail.
8. Term life insurance is an easy way to get started
Term life insurance is an easy and cost-effective way to get protection in the short term. Because this type of insurance runs out at the end of the term, you can use it to protect needs that you can anticipate—like paying off a mortgage or funding college for your children.
On the other hand, whole life insurance can also be an important part of your lifetime financial plan. It’s flexible and can help you meet several important goals, including protecting your income-building equity, providing an additional source of retirement income, and leaving a financial legacy for your loved ones. You can supplement retirement income by taking loans or withdrawals from accumulated cash value (although the policy’s cash value and death benefit are reduced by the amount taken, plus any loan interest charged).
9. The financial strength and reputation of the company you buy from matters
When choosing a life insurance company, the financial strength and reputation of the company you select is a key consideration to ensure guarantees are kept. Ask around and do some research before you buy. (Publicly-traded life insurance companies are required to report on their financial condition four times a year.)
10. There is no substitute for good advice
The more you know about life insurance basics, the more control you have over deciding what’s right for you. To get the right answers, some people prefer talking to a financial professional, while others favor doing their own research. Whatever way works best for you, taking action to protect your family with the right amount of life insurance coverage is an important part of your lifetime financial plan.
Rates for term life insurance vary based on gender, age, health and other underwriting factors.
Guarantees apply to certain insurance and annuity products (not securities, variable or investment advisory products) and are subject to the insurer’s claims-paying ability and financial strength.