Do You Really Need Life Insurance?

by Kaitlyn Ranze | 17 July 2020

The tax deadline has passed and now it’s time for us to address the only other certain thing in life: death. This isn’t a pretty topic but we’re gonna try our hardest to make it brief.

We’ll start by challenging the 65% of young adults between 21-32 that don’t have life insurance.

Planning for the future and living for the moment is a lot easier knowing your debts are covered with life insurance.

Why does a young, seemingly healthy person need life insurance?

It costs a lot to die.

The National Funeral Directors Association puts the median cost of a funeral at $8,755. Cremation costs a median of $6,260.

Loss sucks and grieving hurts. But grieving while scrambling to cover the costs of burying a loved one is even worse. Many are resorting to crowdfunding such as GoFundMe accounts to cover the costs of these expenses.

The last thing anyone grieving wants to deal with is financing the funeral.

Why else is life insurance valuable?

Insurance is a risk management strategy to protect you and those you love. Many families have little to no assets to offset the loss of income.

According to Marc at BetterWallet, “Life insurance should be the first product to consider after having a child. At this time, you have someone who depends on you for your income.”

Any reduction to living expenses could significantly impact your family’s quality of life. And we don’t mean eating out.

“Life insurance can be an effective tool to pay off your mortgage if your spouse dies, leaving you with the remaining payments,” Marc continues.

CFP Nikki Dunn of She Talks Finance agrees, “You don’t want your loved ones or their guardians to not have the resources to take care of themselves.”

This means everything you contributed to your household still has to be accounted for after your passing. Light bill, water bill, insurance, mortgage, rent – someone’s gotta keep paying because your corpse can’t.

Life insurance is an investment in peace of mind.

If you’re young, unattached, and not on the verge of kids, marriage, or a mortgage you may have other considerations.

Have your parents co-signed any loans?

If you die, your parents are responsible for any outstanding debt like your private student loans or co-signed car. That’s right. Your students loans can still get you even after you’re dead.

Plus, the longer you wait to get life insurance, the more expensive it gets.

“Another reason young people may want life insurance is to lock in a low premium (more specifically for whole life). The older you get, the more expensive it may be to get life insurance, especially if your health declines through the years,” Dunn explains.

As a general rule, life insurance is less expensive the younger you are when you initially purchase it. Just like gen z and millienials are calculating the likelihood of needing it is lower, so does the insurance company.

But you may already have life insurance offered through your employer or bank.

Explore these options through your human resources and benefits department. They could offer additional or reduced premiums, so take advantage of them.

But as you explore your options, remember not all life insurance policies are created equally.

We love a good bargain but not all plans will suit your needs, let alone your budget.

Whole v. Term Life insurance

Whole life insurance generally has more expensive premiums. This is partially because it doesn’t expire at the end of a set term (10-20 years). Also, some of what you pay toward the policy is available to borrow against or cash out during your lifetime. This offers you tax deferred accumulation of cash when you need it – like a surprise medical expense or retirement. If you’re looking for insurance that provides tax benefits and a guaranteed return on the money you’ve paid in, you might consider a whole life insurance policy.

With term life insurance, your survivors only receive the pay out if you die within the time frame or “term” of the policy. If it expires before your death, you’ll forfeit the money. But all is not lost. The premiums are typically more affordable for term life insurance. Term life insurance tends to be fairly cheap for people under thirty, because it lacks the guarantee of coverage for life. Another thing to consider is if your payments lapse, so does your policy.

(A weird exception to this is a “return of premium” term life insurance . This policy returns some of your premiums at the end of the term, but is generally more expensive than straight term.)

How much life insurance you need will depend on the situation.

What fits one unattached person may not align the same needs as a person married with kids, a mortgage. and student loan debt. Experts recommend 5-10 times your annual income, but you may require more to dispatch all of your debts and cover your survivors.

Start by having a frank discussion with your loved ones, shoot a message to our money coaches in the Nav.It app, and talk to a financial planner. It’s never too late, until it is.

Having life insurance gives your family options by providing financial benefits to pay off debt, pay for housing, and ongoing living expenses. Not sure where to start? Bestow breaks down your coverage questions and the process is 100% online. Prepare for the unexpected.