Thursday, September 3, 2020
Do I really need life insurance?
Not sure if you need life insurance?
Wondering if it's worth taking out life insurance?
Not sure what kind of insurance you should get?
Insurance. We don't need it until we do it.
Most people don't want to waste the money, I know that's
how I thought it. If you outlast your life insurance, that's essentially going
to happen.
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Let's say you're paying 30 USD/mo for a 20-year life
insurance and living to see the end of it, you'll have paid 7,200 USD and show
nothing for it.
As a reason, many millennials forgo life insurance and rely
on group policies from their employer or other institution.
The problem is that the group policies offered by the
employer are often far less far removed from what families actually need. Most
offer one-year death grant, while others could offer the beneficiary just
100,000 dollars.
But what happens after this year's end? Or after the death
grant expires? You could leave your unhappy husband to sell the house, move in
with his parents and fight to make ends meet.
Did you know?
84% of Americans think that most people need life
insurance, but only 70% of respondents believe that YOU need it. Of the 70
percent, only 41 percent actually have life insurance.
It was me. Like many millennials, life insurance was
something I could always postpone. I had to pay more important bills, such as
my student loans and car payments, credit cards, not to mention supporting a
family.
But my judgment was clouded, I needed life insurance.
Look at it like this, life insurance ensures that your
plans for the future don't die if you do. It is there to act as a safety
blanket for your family so that they are not burdened by financial consequences
for your death.
How to determine if you need life insurance or not
To determine whether or not you need life insurance, ask
yourself the following questions:
• Do you have a family that depends on your income?
• Are you a caretaker of an adult parent or other
dependent?
• Will your death cause a financial burden on your family?
• Will you leave unpaid debts that your spouse cannot pay?
• Do you have enough savings to cover funeral and final
costs?
• Will your spouse be able to send your children to college
without your financial help?
• Do you want to leave a legacy of gift money after your
death?
Depending on your answers to these questions, you will most
likely need life insurance. Here's why:
Why you need life insurance?
Those who have minor children
Children can be expensive and there is really no way to go
about it.
If you died, your other half would have to raise the money
to pay for things like childcare (because he's now a single parent who still
has to work), clothes, food, nappies, schooling (yes, even school needs money),
gifts (for birthdays) and college, to name a few.
According to NerdWallet, the average cost of raising a
child over the age of 18 is USD 260,000 for basics. Will your spouse be able to
afford this solely with his income?
Those who are married
Here's a scenario.
Jack and Jill marry at the age of 24. They each have
student loan debts totaling USD 65,000, and they have car bills totalling USD
50,000. If one or the other dies, one of them is responsible for repaying the
debts left behind.
They depend on each other's income, so they need life
insurance.
If you are supporting a disabled adult
You can count it almost like an addict. They depend on you
for their clothes, food and possibly housing. They take care of the dishes, the
food, the errands.
Even if you can or may not make a financial contribution,
your death will still be a financial burden for those you leave behind. You
have to find someone who does everything you have done, at a price.
If the disabled adult you are caring for is a parent and
there are no other children who can take on the task, then their option is to
try to rent a home or look for accommodation in a supervised dormitory.
Of course, this is not cheap. Your life insurance can help
offset these costs.
They want to cover the funeral costs
Funeral costs are not cheap. In fact, the average cost of a
funeral with a visit and funeral nationwide was .360 dollars.
But that's a mean number. When you add a vault, that number
increases to 8,755 USD. This also does not include an obituary, cemetery fees,
flowers or markings, which puts the total amount at just over 10,000 dollars.
If you don't have enough money to cover these expenses,
life insurance is a good option for you.
The farewell (a funeral blog) breaks down the cost of a
funeral very well in this post.
You want to leave a gift behind
If you only memorized a generous person, then this option
would probably catch the eye.
Let's say all your debts are paid, you've fully funded your
children's college, you've got enough money to leave back to cover funeral
costs and have invested enough to leave a steady income for your loved ones.
If you want to leave a legacy, a trust fund, a gift to your
loved ones or a charity, then buying a life insurance policy might be for you.
For those who are business owners/partners
Do you own a business?
Will your business partners be able
to keep the business running when you die? If your answer is no, then it's a
good idea to buy a life insurance.
Remember that you can buy life insurance for your business
with a buy-sell contract. InsurChance explains how this works if you are a
business partner.
Reasons why you don't need life insurance
You and your spouse have amassed enough assets to take care
of themselves.
Let's say Jack earns enough money to cover all monthly
expenses (including Jills). Let's also say that Jill earns enough money to
cover all bills (including Jacks).
Assuming they have a savings account for funeral expenses
and no children, this couple would not need insurance.
Most people buy life insurance to replace the income of a
lost one, but since Jill doesn't need Jack's money to live her life, life
insurance isn't necessary.
Your children are self-sufficient adults
Are your children adults and can take care of themselves?
Since you no longer have people who depend on your income, you can do without
life insurance.
However, this presupposes that you have a spouse who can
live on without our financial contribution AND assumes that all your debts will
be paid.
If you have enough assets to leave behind for funeral
expenses and no one depends on you
This is where the term policy works best, because at some
point we do not all need life insurance.
Suppose you've funded your emergency savings, you're
completely debt-free, you've got 3-6 months of spending on your fully funded
emergency account, your kids' college funds are complete, and you've invested
enough to make your partner live off your investments until they retire.
Then, my friend, you do not have to take out life
insurance.
So what do you think?
Do you need life insurance?
When you do this, you need to determine what kind of life
insurance is best for you and your circumstances. Then you need to find out how
much life insurance you should take out.
I encourage you to take a look at Policy Genius to explore
your options. You can use their tool to determine how much you need. You can
also chat with a consultant directly on the website to help you with any questions
you may have.
Please remember, the sooner you buy, the cheaper the
insurance will be. Don't put it the way I did.
For this reason, it is best to buy life insurance in your
twenties, just when big changes are taking place, such as buying a house, getting
married and starting a family.