Many Millennials are delaying traditional life milestones that 20- and 30-somethings in the past would have already achieved such as getting married, buying a house or starting a family. We have a lot on our plates trying to achieve our goals of paying off student loans, saving for retirement or starting a business. Believe me, I get it. Our challenges are substantial and our goals are lofty, however those may be all the more reason to consider life insurance. And many of us are starting to hit the traditional life milestones as well. We are not invincible and now is the time to consider life insurance while we are young and healthy.
Reasons to Consider Buying Now
- Because you are younger and (hopefully) healthier then you will be in the future, life insurance may be cheapest now.
- Should the worst happen, it can help cover burial and other final expenses.
- Insurance can help your family replace lost income.
- If you own a home, the insurance proceeds can help pay for home expenses.
- Insurance can help protect co-signers of loans. Many Millennials have student loans and although federal student loans are discharged upon death, that isn’t always the case with private loans. If a parent or spouse co-signed the loan, they may be held accountable for the remaining balance.
- If you are starting your own business or joining a small business, a key-man life insurance plan may be a way to protect your business. This type of policy covers the lives of critical people in a business. It can provide the business with resources and funds to recover from the loss of a critical owner.
Basics of Term Insurance
Now that you know why you should consider buying life insurance, here are the basics about insurance. Term life insurance provides coverage for a certain period of time. It is the most basic type of life insurance and is relatively affordable for most people. Term insurance is different from permanent coverage because it expires at a certain point in time. Some types of permanent insurance such as whole life, universal and variable life may be more suited for estate planning and retirement income strategies and may be more expensive. When you go to buy a policy, you will probably have to answer some questions about your health and depending on the coverage amount, a simple physical and blood test. That is just a very quick overview of insurance so I encourage you to do some research on your own or with a professional to determine what type of policy is right for you.
Determining How Much You Need
There are three main considerations when shopping for life insurance:
- How much coverage is appropriate?
- How much can you afford?
- What are the policy’s features?
Let’s break these down. How do you determine how much coverage is appropriate? There are two common ways of calculating the amount of coverage: needs based vs. human-life value. Needs based method calculates the coverage amount based on what the individual would need to cover their expenses. This includes funeral expenses, emergency funds, mortgage, child care, etc. The human-life value approach is calculated based on the financial loss the family would incur. This calculation includes factors such as person’s age, occupation, salary, employment benefits and other information about the spouse and children. It’s designed to replace all the income that’s lost when the individual passes away. Additionally, when thinking about the right amount of coverage, if you have group insurance already through your job, please remember that you may lose this coverage if you ever leave. While some group policies may allow you to convert coverage to an individual policy, it’s often the exception and not the rule. So, keep this in mind when shopping around.
This brings us to the second consideration of cost. Make sure the costs of whatever life insurance policy you select fits within your budget. If you cannot afford the appropriate amount today, I believe that something is better than nothing. Especially when it comes to protecting the people that are most important to you. And while costs go up over time, you can still revisit additional coverage later on. Moreover, your health is a big factor when getting coverage. It simply pays to be healthy so put the doughnut down.
As for the features, some term policies can be converted to permanent insurance and some have “riders”, or add-ons, that allow you to collect a portion of the policy’s death benefit if you become terminally ill. There are many options out there so be sure to research them and, again, know that a financial professional can also help you answer these questions. No matter what, make sure to protect all the things you have worked so hard to achieve. Make this part of your financial planning now because life is fickle!