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I’m at the stage in my life where I am starting to wonder whether or not I need life insurance. In the past, I’ve heard my mom talk about it and some older coworkers discuss it over lunch. However, I’ve never really heard anyone my age (31) bring up “life insurance” over a cocktail or out dancing. Maybe it’s because the words “life insurance” sound so incredibly serious, that it turns my generation off because it just solidifies the fact that we are truly “adulting.”

Intimidating or not, I decided to put an end to my “wondering inquiry” and do something about it. This past weekend, I started to do a little investigative work and I thought, it would be a good idea to share with you guys what I found.

What is Life Insurance?

A life insurance policy is a contract between you and an insurance company. You make payments (aka known as your premium) to the insurance company and upon your death, they give a lump-sum payment (death benefit) to your designated beneficiaries. A beneficiary, as defined by dictionary.com, is a person designated as the recipient of funds or other property under a will, trust, insurance policy, etc.

Common Types of Life Insurance Policies

Term

Term life insurance covers you, the policyholder, for a specified amount of time and is generally cheaper/more affordable than a whole life insurance policy. The term (the specified amount of time) options vary and is really dependent upon what option works best for you and your situation. Generally, term policy options range any where from 10 to 30 years of coverage. Should you pass away during the term specified in your policy, your beneficiaries will receive a lump-sum payment, as specified in your policy.

If you outlive the term period, then your beneficiaries get nothing and you will either have to extend coverage or get a new policy altogether. For example, let’s say John Doe is 30 years old and buys a 20 year term policy to cover his family of four. He knows that his family relies on his income and he wants to make sure they are taken care of should anything happen to him. Fast forward to 21 years, John Doe is now 51 years old, still alive and in the best shape of his life. John, thankfully, managed to outlive his specified term coverage, so therefore no one (his beneficiaries) gets paid any money (the death benefit) and John will need to start looking into a new policy to cover him for the next 30+ years.

Whole

Whole life insurance covers you, the policyholder, throughout the entirety of your life. Whole life insurance essentially offers you lifetime coverage, that means whatever age you die at, your beneficiaries receive a death benefit (lump-sum payment). Whole life policies/premiums are typically more expensive than term life polices. Another interesting thing about whole life insurance is that you accumulate a cash value on a portion of the premium payments you make. You can borrow against the cash value once it’s built up over time; however, any unpaid loan (money you borrowed from it while living and did not pay back) will be deducted from your total death benefit (aka less money for your beneficiaries).


Whole Vs Term Price Comparison

I pulled an example of pricing from State Farm’s website. On their website, State Farm provides the following hypothetical quote – For a 25-year-old female in excellent health in Illinois, a Whole Life Pan would start at $78.13 a month/$898.00 a year.

For a 20 year Term Life Policy through State Farm, the monthly starts at $15.45/$177.50 annually for $250,000 of coverage.


In these examples, over the course of 20 years you will have paid $3,550.00 for a 20 year term policy or $17,960.00 for whole life. Thats a $14,410 difference over the course of 20 years.


Either way you will need to do your own research and shop around for an individual quote and policy that works for you. Everyone’s circumstances, needs, and edibility (you have to get approved for life insurance) are very different.

Why would I need life insurance?

Eventually you’ll have to face the one certain thing in life, the hard cold reality that one day you will die. When you do, it may give you some peace of mind to know that the people that depend on you are taken care of. Insurance is intended to cover the “what if” scenarios that we face in life.

We purchase car insurance to cover the “what if” I get into a car accident scenario, homeowners buy insurance to cover the “what if” there is a natural disaster that could destroy my home scenario. The only difference with life insurance is that it’s not a matter of “if but “when” it happens (you pass away). Life insurance will help alleviate all the money concerns you may have had when you were alive.

Where can I buy it?

A lot of the big name insurance providers you see commercials for on TV sell life insurance. State Farm, MetLife, Mutual of Omaha are some names you may recognize. I like Dave Ramsey and trust his recommendations so I plan on getting a quote from Zander Insurance and Haven Life. He always talks about Zander Insurance on his show and it seems like Zander is the only insurance company he trusts. Even if you just google “Life Insurance”, all the big names pop up, they are always a good place to start.

I got a quick quote from Haven Life, they make it super easy to sign up (click here to see what they have to offer). Just remember to shop around and not settle for the first quote you receive or how easy the process is to sign up.

A few last house keeping items to know about

Shop around for quotes and coverage, once you find a price/policy that works for you (reminder cheaper isn’t necessarily better), apply. The application process can take a few weeks. You’ll probably need to speak on the phone with your new life insurance provider and you may (probably will) need to schedule a medical exam. Luckily most insurance companies make this pretty easy for you, some even come directly to you.

Also, as you start to shop around you may see the term “rider” thrown around. Simply put, a rider is an add-on provision(s), coverage, that your insurance company may offer at an additional cost. A rider helps customize your policy a little more to help suit your needs. Maybe you’re fine with the basic coverage you’ve come across in your plan however, you are looking for a little something extra, look into what rider(s) they offer.

For example, Haven Life offers an Accelerated Death Benefit, which is generally offered by Haven Life as as a rider. This feature allows you to access a significant amount of money from your life insurance policy death benefit if you are diagnosed with a terminal illness and are expected to die within 12-24 months. The money you can access via this rider specifically can be used towards paying medical bills or upcoming expenses, etc.

Consider the following before purchasing:

  • Do you have people that depend on your income?
  • How much coverage do you need?
  • How does the overall cost fits in with your budget?
  • What will be the best option for you (there are plenty of other types of life insurance out there)?

In closing, do you need life insurance or nah? I can’t really answer that for you, but I plan on getting it. I am moving into a new phase in my life and want to make sure my soon to be wife is covered in the event that something happens to me. It will give me peace of mind knowing that she’s taken care of even if I’m not here. You’ll have to figure out what’s best for you at this point in your life and go from there :o).

Questions for you:

  1. Have you considered getting health insurance or do you have it already?
  2. What did you type of policy is most appealing to you?
  3. What is your “why” for getting it or considering buying it?

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Written by Carmen
Creator of www.makerealcents.com, a blog dedicated to all things personal finance and money. Crushed over 38k in debt in less than 18 months and I'm on a mission to help others achieve financial freedom.