You’re young and healthy—why would you need life insurance? If you already know the answer to that question, you’re a step ahead. Many people in their 20s and 30s, and even 40s, don’t give much thought to life insurance. Fortunately, most of us will live long and happy lives. However, crises happen. When thinking about life insurance, you shouldn’t be asking How long do I expect to live? You should be asking Are people depending on me?
Insurance, after all, isn’t meant to prepare for the inevitable; it’s to protect against risk. Life insurance helps protect your loved ones who depend on you from difficult or impossible circumstances.
Who Needs Life Insurance?
If you’re a single person without dependents and you’ve provided for your funeral expenses, you may not need life insurance. If you’re a one income earner in a two-income family and your spouse’s income is adequate to support the family without you — and you have adequate savings to cover funeral expenses and any other associated expenses — you may not need much life insurance. In that situation, think through added expenses your spouse might face if you weren’t around to do your share. For example, many people mistakenly believe that a stay-at-home spouse who isn’t contributing income doesn’t need life insurance. But if that person were suddenly absent, you’d probably need a full-time caretaker for your children, and that might not be in your current budget.
And, of course, if you’re the sole or primary income earner in your household, it makes sense to insure your family is provided for if the worst happens. Fortunately, term life insurance can be very affordable, especially if you’re young and healthy. As little as $50, or less, per month could buy $500,000 in coverage, with costs increasing as you grow older.
What Kind of Life Insurance?
Term life insurance serves a specific purpose: it pays out a specific amount of money to the beneficiary of your choice when you die. It’s usually the most affordable way to protect against the risk you might leave your family without your income and support. If you’re not comfortable paying those monthly premiums year after year, knowing the policy may not pay off for decades, you may choose whole life insurance. Whole life insurance is more expensive than a term policy, but builds value as you pay premiums. Typically, whole life premiums will not increase as you age. In addition to death benefits similar to those offered by a term life policy, a whole life policy accrues cash value, which you can borrow against or cash in should you find yourself in a crunch during your lifetime.