As you can imagine, life insurance becomes less affordable the older you get. By the time you’re 50, quotes can be up to 212% higher than when you were 30. Clearly, you don’t want to wait too long, but you also don’t want to sign up when it’s not necessary. So, how do you know when to buy life insurance?
While age plays a big role in how much you’ll pay for life insurance premiums, it actually has nothing to do with whether you need life insurance or not. Life insurance usually isn’t on anybody’s mind until they reach some big life milestones. Such as marriage or the birth of a child.
Suddenly you have people depending on you financially.
When you get married, you share a life with another person and you start to depend on each other. If both you and your spouse work, then you may not need life insurance. This will depend on your cost of living, savings and debt, and your profession. Do you rely on both incomes to maintain your current standard of living?
You need to look at the people that depend on your income. And calculate the amount they would need to continue their current living conditions if they no longer had your income. There are a lot of life insurance calculators online to help you come up with this number.
Life insurance calculators use these numbers to help determine how much life insurance you need:
Once you have your first child, you now have someone who is completely dependent on you and your spouse. This is when you definitely need life insurance. Life becomes more expensive as you continue to grow your family. As you have more children, you may want to increase your life insurance coverage. Back to the life insurance calculator you go!
If your family lives in a house with a large mortgage payment, you need to make a plan for how they would continue living in their home without your income. The monthly expenses of your family need to be taken into account. You don’t want your family to be completely uprooted at the time of a devastating loss.
Consider your assets and what your family will be left with after you’re gone. Will they have enough savings to take care of things? Funerals are expensive and many people rely on life insurance to cover those costs.
Make a plan for the debt that your family will be left with. Some debt will be discharged when you die but others will be taken out of your estate, leaving your family with less.
If you own a business, you may want to set up a life insurance policy with your business partner as the beneficiary. You may want to look into a buy-sell agreement. If you’re a sole proprietor then any business debt will be left with your family.
When you’re young, you might imagine a vastly different financial situation 30 years from now than the one you’re in right now. But you really don’t know what the future holds.
You don’t know how long you’ll be there for your family. Or what will happen in your career or health situation. You don’t know if you will have a child who needs a lot of medical care. There are plenty of unknowns in life and that’s why many people choose to buy life insurance.
Life insurance is the peace of mind you and your family need. It allows you to embrace life without so much fear of the unknowns.
If you’re worried about pouring money into premiums without any return, you’re in luck. Permanent life insurance policies accumulate cash value as you pay your premiums. This might be the right type of policy for you if you can afford the premiums.
Permanent policies give you life-long coverage with the option to tap into the funds later in life. This could be for a loan, long-term care, or funding retirement with a life settlement. Many life insurance policies have the option to purchase additional riders to customize your policy. These give you flexibility with how you can use the funds accumulated in your permanent life insurance policy.
If you’re hesitant and wondering when to buy life insurance, purchasing a policy as an asset may help you get over the procrastination. Consider the pros and cons of a term, whole, and universal life insurance policy. You want to be sure you’re making the right decision for you and your family.
Although you can purchase a policy that will give you flexibility in the future, you don’t buy a policy for yourself. If you’re young and can’t afford the higher premiums of permanent policies, consider purchasing a term life insurance policy.
Term policies provide coverage for a certain amount of time. They don’t provide lifelong coverage. However, if your priority is to take care of dependents while they’re young, you may not be interested in a life-long policy. Most dependents eventually become financially independent. You may only be looking for peace of mind from a life insurance policy for 25 years. That’s long enough to get your child through college or set up on a career path.
Term policies come with affordable premiums for young families. If you’re worried about the cost of life insurance, a term policy might be exactly what you need to make that jump to buy life insurance.
Life insurance is a part of your long-term financial planning. Creating a plan while you’re young will give you a better chance of that plan being successful.
So, how do you know when to buy life insurance? As soon as you start planning for your family’s future.
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