If you have someone (a spouse, children, a partner, or an aging parent) who is dependent on your financial or physical assistance, it's important to have life insurance so they are able to survive financially in the event the unthinkable happens. If you're single with no one depending on you, you may want to carry life insurance if you have outstanding debt that has a co-signer.3
Getting life insurance is easier than you think
Sometimes employers offer life insurance benefits. Because your employer will typically qualify for a group rate and contribute to the policy cost, employer-based life insurance may cost less than what you'd find on the open market. However, as you age group insurance may become more expensive, and if you leave your employer you may lose coverage. Additionally, the policy you get through work may not provide enough coverage.
Advisors usually recommend having coverage equal to seven to 10 times your salary.4 So if you earn $50,000 a year, for example, you should consider buying somewhere between $350,000 to $500,000 of insurance. So even if you can get life insurance through your employer, you may need to purchase your own supplemental policy.
An earlier study by Life Happens and LIMRA found that 80% of people overestimate how much life insurance costs.5 Life insurance doesn't have to be expensive at all, especially if you enroll when you're younger and in good health.
Permanent (Whole) vs. Term Life Insurance
When it comes to choosing the right type of insurance, you have two main options: permanent and term.
- Permanent life insurance, also called whole life insurance, is designed to cover you for your entire life. There can also be an investment component or cash value to help you grow money tax-deferred. Modern policies also allow you to bundle your insurances. The death benefit can serve two purposes; protect your loved ones when you die or protect you if you need long-term care. Some policies allow you to access the death benefit while living to help pay for LTC expenses.
- Term life insurance, on the other hand, covers you for a set period of time (such as 20 or 30 years). Essentially, it's meant to protect your dependents in case you die early, with no other value other than the death benefit. It's the more simple form of life insurance, and it usually costs less.
According to research by personal finance site NerdWallet, a 20-year, $250,000 term life insurance policy could cost as little as $157 per year for a 30-year-old, non-smoking man. For a 30-year-old woman who is a non-smoker, it could be as little as $139 per year.6