If you’re a college graduate, you’ve probably had someone try to sell you life insurance. Maybe it was a friend, family member or former classmate turned insurance salesman. Maybe it was just a cold call from a company with an aggressive marketing strategy. No matter how they reached you, chances are it was an uncomfortable experience.
More than any other kind of coverage, life insurance has a reputation as the product of snake oil salesmen. That’s partially deserved, because of how many irresponsible agents try to push life insurance on anyone and everyone who will listen to you. But the truth is that life insurance can be not only useful, but vital – for some people.
Is life insurance worth it for you? Read ahead to find out.
Buy it if you have kids
Sometime in middle school, my parents told me that they each had a life insurance policy. If they both died, I would be the recipient of it. I rarely thought about it afterwards, but now I realize how important it was for my parents to make that decision.
Having life insurance is almost always a necessity if you’re a parent, unless you have significant savings in the bank or your retirement accounts.
Kids are expensive, and raising them on one person’s salary can be almost impossible. There are too many sad stories out there about families who had a great life until one parent died, forcing them to downsize just to scrape by.
If you’re not worried about passing away before your time, think about how you’d feel if your children could no longer afford to go to summer camp or after-school activities. That’s what life insurance is for—so your loved ones won’t suffer any more than they have to when you die.
It’s especially important to buy life insurance for both parents, even if one person stays at home. Consider this: If you stay at home with your children, your partner will have to pay for childcare when you’re gone. In many cases, that can cost nearly as much as a full salary.
Buy it only if you need to replace your income
When my husband and I got married two years ago, I called my insurance agent a week after the wedding to figure out if we needed life insurance. He only asked me two questions: Did we have kids? No. Did we own property together? No.
Then you probably don’t need it, he said.
Life insurance, he explained, is really for those couples looking to replace their income when they die so their partner or dependents aren’t stranded. That’s why single people with no kids don’t need a life insurance policy – no one is relying on their income.
It took me a little bit to understand what my insurance agent meant. My husband and I shared our finances and we each relied on the other’s income. But as he explained, we didn’t truly need the other person’s income to make ends meet. If my husband died, I could support myself without going into debt or relying on help from others.
Most agents do recommend buying life insurance if you share a mortgage with someone. It can be extremely difficult to sell a house quickly if you need the money, and a life insurance policy can help your loved one make mortgage payments if they decide to stay in the home. If you own your home outright and don’t have kids, then you likely don’t need a policy.
Remember, having life insurance is not just about having a cushy windfall in case your loved one passes away. It’s about protecting yourself and your assets so you don’t have to drastically change your lifestyle if disaster strikes.
Don’t buy life insurance for your dependents
Buying life insurance for your children or other dependents is unnecessary, since they’re usually not bringing in any income. Remember, life insurance is to replace someone’s income, but a child doesn’t provide any money to the household (unless your kid is one of the actors from “Stranger Things”).
Instead of purchasing life insurance, invest money in a 529 for their college fund or save a bigger emergency fund. Either will provide better returns than a life insurance policy.
Go with term
There are two types of life insurance: whole and term. Whole life policies are designed to protect you for the duration of your life, even if you live into your 90s. Because these policies have no fixed end date, they’re far more expensive than a term life policy – sometimes as much as 10 times the cost.
A term life policy can be bought for a series of 10, 20 or even 30 years. Most people buy a policy to cover them until they retire, their mortgage is paid off or their children are grown. That’s why a term policy is better than whole because it only covers the amount of time you actually need life insurance.
People who choose whole life often do so because of the cash benefit that builds up in a whole policy, but that amount accumulates far slower than it would if the money were invested in the stock market. That’s another reason why term is more highly recommended.
When buying a policy you can sometimes forego the medical exam, but doing so will often get you higher rates. If the insurer doesn’t know what kind of health you’re in, they’ll be far less likely to give you a good deal. Always opt for providers that require a medical exam. Those that don’t often sell policies not worth buying.
Buying peace of mind
A friend of mine was complaining recently about his insurance payments. While he pays his life insurance premium every month, there’s little chance his family will ever get a life insurance payout.
He was frustrated by the aspect of life insurance that makes it so unappealing to most people. If the policy never gets used, the payments seem like wasted money. If it does get used, the payout will be little consolation in the face of overwhelming grief.
I reminded him that he’s not buying a policy so much as he’s buying peace of mind. He can rest easy knowing that if something happens to him, his family will be ok. That’s what all insurance really is – a measure of protection to make you feel better.
So is life insurance worth it?
You only really need life insurance if someone is relying on your income. So, if you own a home with your spouse, or have kids, you should seriously consider getting it.