Do I Need Life Insurance?

I get it – thinking about the time when you’re no longer around isn’t something you’re excited about doing.

It’s daunting, depressing, and, quite frankly, difficult to imagine.

But there are times when you have to. For example, when debating whether or not to get life insurance.

Is Life Insurance Worth It?

I often get asked whether you need life insurance at all at this age – and why. Some millennials find it hard to believe that insurance is necessary – and think it’s just a waste of their hard-earned cash.

But my answer is always the same. Not having it is a risk no one should take, no matter how young and healthy you are.

Do I Need Life Insurance

In this post, I’ll explain why not having life insurance is a huge mistake many people make – and why you should think twice before you say no to it.

What Is Life Insurance?

In short, life insurance is a policy designed to minimize the financial strain that your death would have on your family. It’s there to provide peace of mind to you and protect your loved ones in case anything happens to you.

While there are many types of life insurance policies, most will pay out cash to your family if you die while covered by the policy. You’ll be the one to choose how much you want your family to get and the amount of time you want the coverage to last.

Why Do Millennials Need Life Insurance?

It’s not surprising that when you’re young and ambitious, taking care of the financial situation without you in the picture doesn’t seem like a priority.

Many other financial goals seem to come first – such as reducing your student loan debt, investing in real estate, and learning how to manage your money.

Heck, even saving for retirement at this age isn’t something many people do (even though they should!) – so how can you expect anyone in their 20s or early 30s to sit there and think about the day they die!

But if you can think of at least one person who would be financially worse off if you died – be it your parent, your partner or someone else – you should seriously consider buying life insurance.

Use Life Insurance to Cover a Debt

Additionally, if you have any debt that you’d be leaving behind if you died, taking out a life insurance policy is a must. Be it a private student loan, a mortgage, or a car loan – leaving that debt behind could seriously harm the financial situation of your family. Burying your loved ones in debt after they’d lost you is the worst thing that could happen – and I’m sure you’d want to do everything you can to avoid that.

Life Insurance Policies Offer Built In Savings

On a lighter note, there are life insurance policies that may offer built-in savings (e.g., a whole life insurance policy). Have you heard of the term “forced savings?” The best way to illustrate this is to think of buying a house. If you’re buying a house with a mortgage, you have to put money into your mortgage – so it’s “forcing you to save.

Whole life insurance may act as a “forced savings account,” too. It’s pricier than other types of insurance, but the policy accumulates cash value over time. The savings are funded by a percentage of your premiums – and your life insurance company may also pay a dividend from its annual profits. Honestly, it may not be the most efficient way to save – but it is making you save, while also helping you feel at ease about your family’s financial wellbeing if something happened to you.

The Cost of Life Insurance Is Less Than You May Think

Cost of Life Insurance for MillennialsFinally, what puts many young people off is the cost of life insurance. After all, millennials face many other financial challenges these days – and who needs another monthly expense, right?

Well, if you’re worried about life insurance leaving a hole in your pocket – I’ve got some good news for you.

I often hear people say they just can’t afford life insurance – because they imagine it to be very expensive. In fact, according to a study conducted by Life Happens, millennials massively overestimate the cost of it. When asked how much a $250,000 term life insurance policy for a healthy 30-year-old would cost per year, the median estimate given by millennials was $1,000, while the actual cost was just $160!

With people thinking life insurance is way above their budget, no wonder only 10 percent of millennials have the life insurance policy they say they need.

Millennials Get The Best Rates

The truth is, life insurance costs much less than you think. Being young and healthy gives you an incredible advantage when shopping for life insurance – another reason to get it now. As a millennial, you will typically get better life insurance rates than any other age group. The older you are, the higher the price – because your life expectancy decreases with age, while the risk of health problems increases. As a result, the cost of a life insurance policy goes up. Makes sense, right?

As a young and healthy individual, on the other hand, you could get a decent amount of term life insurance for as little as about $25 a month.

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How Much Life Insurance Do I Need?

Pinpointing the ideal amount of life insurance coverage is tricky – but making some calculations will allow you to make a sound estimate. The best way to calculate it is by looking at your long-term financial obligations and then subtracting your assets. How much insurance you need will, of course, depend on your circumstances, but as a rule of thumb, it shouldn’t be less than ten times more than your income.

If you have any dependents, you’ll need enough insurance to cover their expenses if you die and your income stops.

If you don’t have any dependents, you should think about any outstanding debt (college, mortgage, car loan, etc.). You’ll want to make sure your beneficiaries have enough to continue paying off those debts.

Maybe you want to provide a financial cushion to your family – for example, covering some of their medical expenses or contributing to family vacations. Think about how much you usually spend on stuff like that by adding up your expenses – then you’ll have a better idea of how big the sum should be.

Finally, you also need to think about end-of-life expenses – such as funeral costs. Making sure your policy covers that would help take the financial burden off your family’s shoulders (my advice would be to factor in at least $7,000 for funeral costs).

A life insurance needs calculator, like the one at LifeHappens.org, can help you run the numbers.

What Are The Types of Life Insurance?

Do you find the various kinds of life insurance policies confusing? I don’t blame you! There’s a lot to take in – so let me break it down for you.

While there are many different kinds of life insurance on the market, here are the main types worth knowing about:

  • Term life insurance. Term insurance is the most common type of life insurance. You pay for the death benefit that goes to your beneficiaries if you die – and it can be paid out as a lump sum, monthly payment, or annuity. What makes it so popular? It’s a lot more affordable than other types of policies. As the name suggests, term life insurance expires at the end of the term, which could last for 10, 20 or 30 years. You can choose a term that provides coverage until your mortgage or other debts are paid off or your kids are on their own, for example. The longer the term you choose, the higher the annual premiums will be.
  • Permanent life insurance. Permanent life insurance refers to policies that don’t have an end date — they’ll last as long as you pay any required premiums. These policies can be helpful for people who need insurance for more than 30 years — if, for example, you have a child with special needs who will always depend on you for support. These policies can also provide forced savings. The premiums are generally higher than they are for term insurance, but part of your premium pays for the insurance and part goes towards the policy’s cash value, which is like a tax-deferred savings account that you can withdraw or borrow (withdrawals and outstanding loans are subtracted from the death benefit). Permanent life insurance (also called “cash value life insurance”) is an umbrella term that covers several kinds of life insurance policies, such as whole life, universal life, variable life and variable universal life insurance.
  • Whole life insurance. Whole life is the original type of permanent life insurance. You pay a fixed premium every year, have a guaranteed death benefit, and your cash value is guaranteed to grow by at least a certain amount every year. You may also receive dividends based on the performance of the insurer’s investments.
  • Universal life insurance. Like a whole life insurance policy, universal life insurance also has a cash value – so the premiums you pay go toward the death benefit, as well as the cash value. But with universal life insurance, you can change your premium and death benefit amount without taking out a new policy. You need to be careful to monitor the policy, however — if interest rates end up being lower than originally expected when you bought the policy, you may have to pay additional premiums to keep the policy from lapsing.
  • Variable life insurance. Variable life insurance also has an investment component, but instead of being based on the insurer’s investments or interest rates, you invest the cash value into mutual fund-like sub-accounts that can increase or decrease in value.
  • Variable universal life insurance. As you may have guessed, this insurance type combines components of variable and universal policies. Your premium and death benefit amounts are adjustable, and you can also invest the cash value in the policy’s sub-accounts.
  • Simplified issue life insurance. With this insurance type, there’s no medical exam (which is typically something you have to go through when applying for life insurance). You’re good to go after filling out a health questionnaire instead (if you have no serious health problems). This option may be ideal for healthy folks who want an insurance policy fast.
  • Guaranteed issue life insurance. Not only will you be able to forego the medical exam with guaranteed issue life insurance – but you can also skip the health questionnaire. As long as your premium is paid, the insurer will cover you. This policy type is actually better for older people with declining health. If you’re young and healthy, other types of policies will offer better life insurance coverage at a cheaper cost.

How to Get The Best Life Insurance Quotes in 2019

Taking out life insurance is a smart financial move that you can make right now to protect your loved ones.

After all, you will only be paying a fraction of the cost, because life insurance rates for healthy millennials are significantly lower. In other words, getting life insurance as a millennial is a bargain – and missing out on the security it provides (for a small cost) would be a shame.

If you’re considering getting life insurance, but you’re not sure where to start, this list of 10 best life insurance companies for millennials will help. In the post, you will find a quick and easy summary of each company, their costs, as well as pros/cons, so that you can find a suitable option and make the right choice.

Kimberly Lankford

Kimberly Lankford

Kimberly Lankford is an Editor at Millennial Money. Kim has been a financial journalist for more than 20 years. As the “Ask Kim” columnist at Kiplinger she wrote about insurance, taxes, retirement planning and other personal finance topics. Her articles have appeared in the Washington Post, Boston Globe and Bloomberg, and she was syndicated in the Chicago Tribune, Denver Post, Baltimore Sun and other papers. She won the personal finance Best in Business Award from the Society of American Business Editors and Writers, and she has written three books: Rescue Your Financial Life, The Insurance Maze, and Ask Kim for Money Smart Solution. She lives in Lynchburg, VA. with her family and 1-year-old Vizsla.
Kimberly Lankford

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