5 Basic Things You Should Know About Life Insurance

Ever since becoming a parent I worry about everything. I’ve had more sleepless nights from worrying about random what-ifs 20 years into the future than from a crying baby. Responsibilities feel different when you have loved ones, especially children, and financial anxiety can creep in and cause those responsibilities to feel extra stressful. One way I recommend newlyweds and new parents alleviate some of that stress is to insure they are adequately insured. 

Life insurance is one of the most important purchases you can make to ensure financial security for yourself and your family. Many clients I’ve worked with over the years have assumed life insurance is only for really wealthy people or a scam but the truth is the average American will be very well served by the right life insurance product. 

If you have debt, own a home, have a partner or other family members who rely on you financially, life insurance is going to be an important way for you to mitigate risk. When you’re ready to provide protection and peace of mind for you and your loved ones, consider the following when purchasing life insurance:

1. Consider how much coverage you need.
   You’ll want to start by thinking about the obligations you want to cover. For example, do you want your family to be able to pay off your home mortgage if you pass away? Do you have other debts like student loans or credit card balances you don’t want to burden your family? Add those balances to your coverage amount. Then consider replacing lost income. Does someone rely on your income to support their lifestyle? Think of how many years worth of that income you’d like to replace. Another popular option is to cover a child’s future education. All of these costs should be added together to come up with a coverage amount, or the total dollar benefit your beneficiaries will receive if you pass away. *A rule of thumb is to start with 10x your annual salary as a minimum coverage amount*

2. Understand the different types of life insurance available.
   Two main categories are term insurance and permanent life insurance. Term life insurance provides coverage for a specific period and is often much less expensive than permanent life insurance which offers lifelong coverage. Term insurance will be appropriate for most people. *A good rule of thumb is to purchase coverage on a term that will take you through when you plan to retire so your earning years are covered. Are you 40 years old and plan to retire at 65? A 25-year term would be a great solution.*

3. Understand how you pay for it.
   If going with a term policy (most often recommended) you’ll be paying what’s called a premium to own the coverage. The premium is likely charged as a monthly amount each month until the policy is either paid out from a claim (loss of life) or expires. The higher the coverage amount the higher you can expect your premium to be. Other factors that impact your premium will be your age and health. 

4. Know where to go to buy a policy.
   I don’t typically recommend working with an insurance agent or broker unless you have unique and sophisticated needs. For most of you looking for a term policy you can shop through policy genius. Policy genius is like the expedia of insurance where you can enter your desired information once and then providers will be recommended to you based on fit. There is not one company that always has the best rates so its a good idea to shop around rather than just go with the same company your friend or coworker used. 

5. Review and update your needs over time.
   Purchasing life insurance *might* be a one-time experience, but it is an important aspect of your financial life that warrants periodic review. Generally you’ll want to reassess your coverage needs whenever you experience a life event like a marriage, birth of a child, purchase of a home or significant increase in salary. As time goes by and your life becomes more complex the more coverage you’ll likely need. 

Purchasing life insurance is a super grown-up move and one you won’t do many times so you’ll want to take your time and find a policy that meets your needs.