When to Buy Life Insurance: Everything You Need to Know

When to Buy Life Insurance: Everything You Need to Know

57 percent of people in the United States hold life insurance policies as of 2019. 

As you progress through life’s different stages, your priorities evolve. One thing that doesn’t change, however, is the need to protect against life’s uncertainties. As a result, life insurance is now a budgetary staple of more than half of all Americans as they seek to care for themselves and their loved ones.  

Despite public awareness around the policy, some are still unaware of its benefits and don’t know when to buy life insurance. Here is a compact guide to help you understand the policy and how it can help you.   

What Is Life Insurance 

Life insurance is a policy with an insurance company that revolves around compensation when you die. With life insurance, you enter into a contract where you agree to pay periodic installments to the insurance provider. These payments can be done once or twice a year but are more commonly paid monthly. 

In return, the insurance company agrees to issue a lump-sum payment (called a death benefit) to your beneficiaries when you pass away. The money the beneficiaries will receive is typically tax-free.  

If you decide to get a life insurance policy, you must inform your beneficiaries about it. While they do not need to possess the policy to make a claim, they must know which company holds the policy. 

After the beneficiaries apply for a claim on the life insurance policy, they can expect to get the money in one to two weeks on average. The death benefit can go towards paying for the funeral, a mortgage, or any other need.  

Types of Life Insurance Policies 

When you are buying life insurance, you need to select the right type of policy for you. The most useful way to determine which policy works best for your needs is to evaluate the several kinds of policies available and match them to your objectives.   

Term Life Insurance

A term life insurance policy is meant to protect your beneficiaries for a specific period.  

Term life is often called “pure life insurance” because its only goal is to protect your dependents in case you die prematurely. That’s because if you do pass away within the coverage period, your beneficiaries will receive the death benefits. That is the policy’s only purpose. 

When buying a term life policy, you are the one who gets to select the coverage period. The most typical period for term life policies on average is 10, 20, or 30 years.  

During the lifetime of a term life insurance policy, the premium you pay will remain the same. Once the period lapses, a provider can offer to extend the policy, but that will be at higher premiums.  

A rule of thumb when you are purchasing term life insurance is to select the period where you will be the primary breadwinner. That way, should you die within the period, your dependants can be taken care of by the payout.  

Note that although the death benefit from this policy can make up for the lost income, it’s paid out as a lump sum.  

Permanent Life Insurance (Whole Life Insurance or Universal Life Insurance)

A permanent life insurance policy is intended to offer protection for the whole of your life. As a result, the premium you pay for whole life insurance is markedly higher than for term life insurance during the early years of the policy.  

The premium payment amounts for this policy are fixed, and in addition, the policy can have cash value. The cash value of a permanent life insurance policy can act similar to an investment and/or savings tool. It grows over time at a guaranteed rate, and since it has a tax-deferred status, you will not pay any taxes on the gains as the cash value accumulates.  

Since the policy has a savings aspect to it, you can borrow against its value or even swap it for cash. However, if you do end up taking a loan against the policy, you should take care to pay it back with interest. If you don’t, you will end up lowering the death benefit.  

Some permanent life insurance policies come with the right to earn dividends from the insurance provider’s financial return. You can use these dividends to reduce your premium, leave them as a deposit, and earn interest or take them out as cash.  

When Should I Buy Life Insurance 

When it comes to life insurance, the general rule of thumb is that you ought to buy it when you are younger and in better health. That’s because it will be cheaper since the premium you will pay won’t be as high. Here are some scenarios that can help you answer the question, “When should I get life insurance?” 

You Have No Dependents  

Even if you don’t have any dependents, life insurance is still necessary. For example, it can help your loved ones foot your funeral expenses.  

You Have a Family To Protect

Buying life insurance when you’re thinking of starting a family is a perfect time. You will pay lower premiums since you are younger and in better health. 

But what if you already have a family? When you have dependents, life insurance is critical in ensuring their well-being. Should you pass away during your productive years as a breadwinner, a term life policy can help take care of your family. If you live to retire, you know that a whole life policy can enable your family to keep going after you pass.  

You Are A Business Owner 

Life insurance for a business owner is vital in ensuring that the company keeps going even after your death. You can take out life insurance and ensure that those who depend on you are recognized as the beneficiaries. In the event of your death, they can keep up with the businesses’ obligations and have a fighting chance at survival. 

Protect Yourself and Your Loved Ones From Financial Ruin 

Nearly half of the population doesn’t own a life insurance policy. Some might not know when to buy life insurance or if it’s of any use at all. No matter your age or stage of life, you need to take the steps to provide for your loved ones after you’re gone. 

ALLCHOICE Insurance is an experienced multi-line insurance agency ready to focus on your risk mitigation needs. Talk to us today to discover how you can protect your loved ones from financial uncertainty.  

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