Do you really need life insurance? If so, when’s the right time to get it?

So, life insurance is the one type of insurance that I think people overlook the most, but it actually plays an important role in your estate planning.

It may be overlooked because most of the time YOU don’t actually benefit from it; your family does. 

Other types of insurance are more tangible, you know. Like with health insurance, you can swipe your health card at the doctor’s or dentist’s office.  Or if you get in a car accident, your car insurance is there to pay for the repairs. 

But most people won’t see or get to use the benefits of life insurance. So it’s out of sight, out of mind. 

But like I said it can play a big role in estate planning.

A life insurance policy is a contract between an insurance company and a policy owner. The contract says that in the event of the policyholder’s death, specified individuals, called beneficiaries, will receive a payout.

There are two types of life insurance.  

First, there’s term life insurance that only lasts for the specific period of time that you purchase. If you pass away during the term, then your beneficiaries get the policy payout, but if you are alive when the term ends, there’s no pay-out.  Insurance companies usually offer the option to renew the policy when the term ends and people tend to go with this option because it’s cheaper.

Then there’s whole life insurance, which is the one people are most familiar with. It’s permanent life insurance that provides coverage for your entire life. When you pass, your beneficiaries will be paid the policy amount. 

Individuals can get covered for different amounts depending on a variety of factors. Two of the biggest factors are age and health. The older you are, the more likely it is that your monthly payments will be higher. The same with health, if you have certain pre-existing medical conditions your premiums are likely to be higher as well. 

Insurance companies do this because you pose a higher risk to them. That’s why insurance agents would recommend you get a policy as soon as possible. Like as soon as you get your first job. 

Another factor that some people may not know matters, is your job. People with “high risk” careers may also end up paying more money for coverage. For example police officers, nurses, even journalists. You did see me down a Tivoli dodging bullets right?

The specific requirements of your policy, like exemptions, deductibles etc would vary based on your insurance company. 

Now contrary to popular belief, life insurance can also benefit YOU while you’re alive. 

Whole life insurance accumulates cash value over time. Cash value is the portion of your policy that earns interest.  You can actually withdraw this cash. You can use it as a savings plan or withdraw the cash to cover emergencies or use it for retirement. Some policies also come with an investment portion.  

Additionally, depending on your institution, your life insurance policy can be used as collateral for mortgages.

So, there are a lot of benefits to having life insurance. Funerals are expensive and your family members will already be dealing with your passing, so life insurance is one way to help ease the burden.

And that’s the bottom line.