What Young Families Need to Know about Term Life Insurance
Life insurance often slips under the radar until life serves up a major milestone—like tying the knot, snagging that dream home, or welcoming little ones into the world. Suddenly, you have many financial responsibilities. These include mortgage payments and childcare costs. You also need to plan for future financial goals.
Life insurance is important for your family's financial security. It is not just a task to check off your financial list.
It is also a crucial part of your overall financial plan. It's a safety net that gives reassurance. If something unexpected happens to you or your partner, your loved ones won't be left without support.
Securing coverage is not simple. It requires navigating through a complex maze of options and decisions. This process can be overwhelming.
The silver lining? For busy young families juggling a myriad of commitments, there's often a straightforward solution: term insurance. Offering coverage for a fixed premium over a specified period (think 10, 15, or 20 years), with policy amounts ranging from $250,000 to $10 million, it's a smart choice for those needing protection until the kids are grown, the mortgage is paid off, or another milestone is reached. Plus, term policies tend to be more transparent, easier to compare, and simpler to purchase than their permanent counterparts.
So, here's the lowdown on term insurance—the need-to-knows for young families navigating the world of financial planning.
Buying it can be painless
Acquiring it can be surprisingly effortless. In the past, getting life insurance meant going through a medical exam and getting a needle poke. But now, you can easily complete the whole application process from your own couch. Just a few questions about your health and habits and you're good to go.
Moreover, in states that allow it, many life insurance companies have embraced streamlined underwriting. This means fewer steps to go through. Sometimes you can even skip the medical exam.
The approval processes are faster. Decisions often arrive in your inbox within minutes or days of applying.
Proceeds can be Used by the Family to Maintain their Lifestyle
If the insured person dies suddenly, their life insurance policy can provide financial support for their family. This money can provide financial support for the family after the insured person's death. It can help cover expenses and ensure the family can continue living as they did before.
Life insurance can offer peace of mind knowing that loved ones will be taken care of financially.
The funds can be used for different financial needs like rent, daily expenses, education, and funeral costs. The money earned from these funds can also be used for mortgage payments or funeral and burial services expenses.
Not Just for Final Expenses
Life insurance does more than pay for end-of-life costs. Life insurance provides financial protection for loved ones after a policyholder passes away. It can help replace lost income and cover expenses.
Life insurance is a valuable tool for ensuring financial security for your family. Despite this, around 30% of consumers perceive it solely as a means to cover burial expenses. However, this narrow viewpoint may lead to underestimating the amount needed to replace lost income or fulfill wealth transfer objectives—two vital functions life insurance can fulfill for loved ones left behind after the primary breadwinner's passing.
It's Cheaper than you Think
Don't underestimate its affordability. Term insurance often comes with surprisingly low premiums. For instance, a healthy, nonsmoking 30-year-old might pay less than $20 per month for a $250,000 policy, depending on the chosen term length.
This budget-friendly pricing stems from term insurance's specific design: it's intended to provide coverage for a fixed period. If you outlive the policy's term and choose not to renew it, your beneficiaries won't receive any payout. However, many families find this trade-off reasonable. In 2021, 40% of those purchasing insurance independently opted for a term policy.
Think of it as purchasing precisely the protection you require for the exact duration you need it, without any unnecessary extras.
Don't know how much to buy? That's Ok.
Feeling uncertain about the right coverage amount? Don't worry, it's common. Instead of guessing, consider these helpful methods:
Back-of-the-envelope estimate: A straightforward approach is to aim for coverage equivalent to at least 10 times your salary.
Calculator: For a more precise assessment, leverage our life insurance calculators and tools to crunch the numbers.
Make sure to check your insurance regularly. This is important when big life changes happen. For example, when you have a new family member or take on a big financial responsibility like a mortgage.
Comparison Shopping
Comparing insurance policies might not be your top pick for a leisurely afternoon activity. Term insurance is straightforward and lacks the complexities found in other types of life insurance.
If you're looking at policies with similar basic terms, you should mainly consider a few important factors:
Policy cost: Compare the regular premium of each policy, usually charged monthly.
Customer service: In the event of a claim or policy adjustment, you'll want a hassle-free experience. Look for insurers with responsive customer service to ensure smooth interactions.
Financial stability: It's crucial to choose an insurer with a solid financial standing, ensuring they'll be able to fulfill their obligations even years down the line. You can easily assess this by checking the insurer's financial strength ratings, typically available on their website. Look for ratings from reputable agencies like AM Best, S&P Global Ratings, Moody's Investors Service, or Fitch Ratings.
While understanding these ratings might require some digging (each agency uses a different scale), it's worthwhile.
Sooner you buy, the lower your premiums may be
Buying term insurance early can help you get lower monthly premiums, thanks to life expectancy calculations.
With term insurance, you generally lock in a fixed monthly premium that remains constant throughout your policy term. This means that regardless of any changes in your health over the next few years or decades, your premium payments and coverage level remain unaffected.
Bottom Line
Life insurance serves as a crucial safety net for families, especially during major life milestones. Whether you're buying your dream home or preparing for a new addition to the family, the financial obligations can feel overwhelming.
However, understanding the importance of life insurance and navigating through its complexities can provide much-needed peace of mind. Don't wait, take action now to protect your loved ones. Starting sooner will bring greater benefits in the future.
Sources:
https://www.fidelity.com/learning-center/personal-finance/family-financial-safety/term-insurance
Disclosures:
This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.
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These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.
Life Insurance: Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.