If you’ve spent any time reading about life insurance, you’ve likely heard it said that it’s best to buy life insurance when you’re young and healthy. That is something that gets brought up a lot when people talk about life insurance because it’s true. Life insurance is always cheaper when you’re young and healthy.
So does that mean you need to run out and buy a policy the day you turn 18?
No, it doesn’t.
It’s a great idea to buy life insurance when you’re young, but it’s also important to purchase a policy when it’s actually needed. Buying at the right time can help you select the right coverage amount, term length, and policy riders. It can help you make sure you’re not paying for coverage you don’t need or a policy that’s not right for your situation.
So when should you buy coverage?
There are no exact rules or set age, but certain life events can occur, triggering a time in which you should start looking.
The following article will discuss those certain life events and why a life insurance policy would help provide financial protection to those life events. Read on for a closer look at when is the right time to buy life insurance coverage.
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Important Reasons to Purchase Life Insurance Coverage
When it comes to a few of the other insurance products out there, there’s a clear time to when you must buy them. For example, you purchase homeowner’s insurance when you have a house and car insurance when you have a car.
It’s a little less clear when it comes to life insurance. However, some general suggestions typically revolve around specific life events that can trigger the need for life insurance.
As a rule, you need life insurance as soon as someone else is dependent on your income. This often happens when you get married or have children, but those aren’t the only situations where it applies. Check out some of the common scenarios we’ve detailed below.
Debts that you still owe when you pass away can be taken out of your assets, estate, or passed on to your loved ones. Preventing this is one of the reasons people purchase life insurance. You can use a life insurance policy to pay off any remaining debts and preserve your assets, so they can be passed down as you intended.
So, what happens if you don’t have assets to collect from? In this case, your debts would normally die with you. However, if you had a cosigner for any debt you have, that debt will fall on the cosigner when you die.
For example, let’s say you’re 23 and have no assets to your name, but you are paying off student loans from college. Your parents also cosigned on those loans when you first took them out. If you were to die unexpectedly, those loan payments and the remaining loan balance would fall onto your parents.
You might think that if you’re 23 and paying off student loans, a life insurance policy is an expense you can’t afford, but that’s not the case. In most instances, you can get a small term policy for very low rates.
In fact, at the time of this article, a healthy 23-year old male could pay as low as $7.37 per month for a $100,000 term life insurance policy and a female just $6.79 per month.
Student college loans are widely known for requiring a parent consigner, but they are only one example of loans requiring a consigner’s help. Let’s say you wanted to purchase a new car, but because you haven’t established enough credit or maybe you don’t have the greatest credit score, the finance department is requiring a cosigner before they can approve the car loan.
If you pass away while there is a remaining balance on the car loan, the outstanding debt would be passed onto the consigner.
Again, these are only two small examples of many possibilities in which a loan may require a cosigner. However, it shows a good example of why the right time to buy life insurance is when any significant loan debt can be passed onto someone else.
Even a small life insurance policy with enough death benefit that only covers the number of your loans can be a significant stress reliever for your family.
Getting married often prompts people to take out life insurance policies. While not all couples combine their finances, many do. Even when both spouses are working, many couples make financial decisions based on their combined income.
This can include the home they choose to rent or buy, the number of cars they have, the loans they take out, and much more. Paying for these expenses often relies on both incomes.
This is where the right time to buy life insurance comes in. If one spouse were to die suddenly, the surviving spouse might no longer be able to pay for their home, household bills, and other necessities. That’s why it’s always a good idea for both spouses to take out life insurance coverage on each other as it provides a replacement of income should one pass.
A life insurance policy with a death benefit that is at least 10x annual income could provide income to a surviving spouse for up 10 years or possibly longer if invested wisely and earning interest. The death benefit payment received from the life insurance policy would allow the surviving spouse to maintain their current lifestyle, replacing the lost income as if it was still being contributed to the family finances.
A policy can still be a good idea even if you and your spouse don’t combine finances. You wouldn’t be replacing your income in this situation, but you would be covering your own end-of-life expenses.
Having a life insurance policy could cover things like your final medical bills and your funeral cost. Having these expenses covered can save your spouse from significant financial stress while they’re grieving.
Having children is another event that often prompts the right time to buy life insurance. After all, life insurance policies protect people who depend on your income, and your children solidly fall into this category.
It’s a good idea to factor in your current children as well as any children you’re planning to have in the future. According to the US Department of Agriculture, it costs an average of $233,610 to raise a single child based on a middle-income married couple’s income back in 2017 when the study was last conducted. Factor in projected inflation, and you’re looking at $284,570 to raise a child from birth to age 18 in 2021.
Many parents also purchase enough insurance to cover children all the way through a college education. This way, you’re not just replacing your income so that your children and surviving spouse can stay in their home and have their expenses paid, but you’ll be leaving behind money to make sure they enter adulthood without debt of their own.
Life insurance for stay at home parents
It makes sense that a parent who works needs life insurance, but what about stay-at-home parents? Do they need coverage?
The answer is yes, definitely.
In fact, a stay-at-home parent having life insurance coverage is an important piece of financial planning that families sometimes overlook.
Stay-at-home parents are caring for children during the day, along with taking care of many other household duties. If the non-working spouse were to pass away, those children would still need care while the surviving parent worked.
Childcare is a major expense that can add up quickly. That’s why it’s important to factor this potential cost into life insurance planning. You can look at the cost of childcare as a stand-in for the stay-at-home parent’s salary.
To get a good idea of what the potential costs of childcare could be in your area, you can do a simple internet search of “childcare near me,” which will pull up the results of any childcare facilities located within your area.
From there, you can visit the websites to get an average of the yearly cost of childcare and use that amount as the stay-at-home spouse’s salary by a multiplier of what it would be until all children would not require childcare services.
Most life insurance companies will also allow a non-working spouse to have an amount of life insurance coverage that is often equal to the working spouse’s annual income.
A mortgage is one of the biggest financial commitments people make in adulthood. Having a mortgage is a serious responsibility. It’s also a major reason people take out life insurance policies. It’s common to take out a term life insurance policy that will last as long as your mortgage payments.
This is important even if your mortgage is solely in your name and not cosigned by another person. Just like other debts, mortgage debt can be taken out of any assets you own if you die before it’s paid off.
However, when you stop paying a mortgage, the bank will take possession of your home. So even though your family won’t be expected to pay back the entire mortgage, they won’t be able to say in your home if they are unable to pay the monthly mortgage payments.
That’s why it’s important to have a life insurance policy in place if you own a home. Your life insurance policy will help pay off your mortgage or provide the funds needed to pay the monthly mortgage payment if you die unexpectedly. You’ll be ensuring that your family can stay in their home for years to come and providing invaluable security.
Started a Business
Being a business owner means taking on many financial responsibilities you likely didn’t have when you were someone else’s employee.
This can, without a doubt, call for the need for a life insurance policy since your personal finances are often tied into your business finances when you own a business. You might have a business partner or employees who would also suffer financially if you were to die in addition to your own family.
That’s why it’s often advised to have a life insurance policy if you own a small business. As a business owner, your life insurance policy is likely to be different from your personal life insurance policy for multiple reasons, starting with the need for a buy/sell agreement if you are not the company’s sole owner.
Buy/Sell Agreement is a business planning tool that requires each company owner to purchase a life insurance policy on each other. The death benefit is used to pay for the deceased owner’s share in the company. Setting up a buy/sell agreement can be done in a few different ways but requires a legal agreement laying out the details as to how the buyout should occur if an owner passes away.
To provide a simple example of how a buy/sell agreement could work, let’s say there are two business owners, each owning 50% of the business. Should one partner pass, the death benefit would be paid to the surviving partner, which would then use the death benefit to buy out the deceased partner’s ownership in the company. This may be a spouse or other heirs to the deceased.
Even if you’re the only employee of your business, it’s a good idea to get a life insurance policy to pay off any business loans or other debts your business may have accumulated. Just like personal debt, any business debt could be taken from your assets if you don’t have funds in place to pay it off when you die.
Small Business Administration Loans
While a life insurance policy is normally an optional purchase, there are times it’s a strict requirement. Taking out a loan from the Small Business Administration is one of those times.
Securing a life insurance policy is often part of the process of taking out a Small Business Administration loan. This policy must have a large enough death benefit to cover your entire Small Business Administration loan and must have a term long enough the entire length of your repayment agreement.
Keep in mind that a life insurance policy for your Small Business Administration loan might not be enough to cover your family in the event of your death. The death benefit proceeds are paid towards the SBA life loan balance, and any remaining money from the death benefit payout would then be paid to your beneficiary. If you die early, there would be very little left for your family.
That’s why it’s a good idea to have two policies in the case. One life insurance policy will replace your income and provide for your family if you die. The second policy would be used to repay your Small Business Administration loan or any other company debt.
Senior Parent Care
Children aren’t the only people who can be dependants. Many families care for senior parents, grandparents, and other relatives who can no longer live independently. These family members are also dependent on the working adults’ income in the home and can be a reason to take out a life insurance policy.
This might not seem like an expense you need to plan for. After all, if you’re 50s and your 80-year-old mother lives with you, it’s unlikely you’ll die before her. However, life insurance is about planning for the unexpected.
If you were to die suddenly, your mom would still need care. There would still need to be enough money to pay for her basic needs and her healthcare. If you’ve ever been a caregiver or have looked into the cost of long-term care, you probably already know those costs can add up very quickly. That’s why they need to be factored into your decisions to purchase a life insurance policy.
Often, the right time to buy life insurance presents itself when we have a loved one, friend, or someone we know go through a serious illness such as cancer or a heart attack and have seen first hand the financial impact a medical condition can have on a family.
Life insurance can offer so much more than just death benefit protection to loved ones. Sure it’s definitely the main objective, but many of today’s policies can also offer an extra layer of financial protection in the form of living benefits.
Living benefits are a policy feature that has the ability to pay out a cash benefit if you become sick with a chronic, critical or terminal illness. Take, for example, Transamerica’s popular Trendsetter Living Benefits term life insurance coverage.
That life insurance plan comes with three built-in policy riders that can allow for early withdraw of the death benefit if you become sick and need income to protect your financial savings.
Other living benefit life insurance plans can even offer long-term care benefits that can also pay an income stream from the death benefit if you ever require long-term care assistance.
When shopping for life insurance, be sure to ask about plans that offer living benefit options.
Looking for a supplemental retirement income option? If you’re worried about the current state of social security benefits when you’re eligible to collect or are looking for a way to supplement an existing retirement plan, a life insurance policy may help.
Permanent life insurance plans such as whole life insurance and many universal life insurance plans have the ability to earn cash value growth based on interest rates and are generally not at risk from the downside of the market.
As you give the policy time to grow come retirement age, you can make tax-free withdrawals from the cash value account to supplemental your overall retirement income.
If you’re in your younger years and thinking about the future, this may be the right time to purchase a life insurance policy, especially a policy that has cash value growth potential.
With the average funeral costing near $10,000, it can be a heavy financial burden for loved ones to pay. No matter how old you are, a life insurance policy can take that financial burden off of your family from having to pay for unexpected funeral costs.
How Much Life Insurance You Really Need
Once the right time to buy life insurance has presented itself, you will need to figure out how much life insurance you actually need. There are several ways to do this.
One simple method that many financial experts often recommend is taking your annual income and multiplying it by 10-12. The total number you get from this calculation would provide your beneficiary with at least 10 years’ worth of your annual income if you were to pass.
Why 10 years annual income?
The 10 years annual income is often more of a starting place than a final answer. It provides time for grieving and replaces the immediate loss of a working spouse’s annual income for a minimum of 10 years.
While multiplying your annual income by a multiplier of 10, it doesn’t include expenses like:
- Any debts you have
- Your mortgage
- Your children’s education
- Your final expenses
That’s why it’s better to take it slow when trying to find the perfect benefit amount. It’s a specific calculation that depends on you, your family, and your specific situation. You need to factor in your salary and assets, but also all of your expenses and debts.
It’s a good idea to sit down and figure it out before you start shopping for policies. When you’re ready, you can check out our article on “how to buy the right amount of life insurance,” which really. It’s a step-by-step guide on how to determine how much coverage you really need.
The Best Type of Life Insurance to Buy
The best type of life insurance depends on you and your financial situation. However, for most people, term policies make the most sense.
Term life insurance is a popular choice among young families and even older adults looking for affordable coverage. Term policies last for a set amount of time or term known as contract lengths. Generally, term lengths are between 10 and 30 years, although a few 40-year term policies exist. Term policy amounts can range from as little as twenty-five thousand to as much as several million dollars.
Term policies don’t roll over or build cash value, which is why the insurance coverage is so affordable. Your policy will cover you for the number of years in your term, and your premium payment will stay the same throughout the contract length you choose. When your term ends, your policy will end, too, and you’ll no longer have coverage.
Term policies are a great way to get coverage while your children are young, while you’re paying a mortgage, or during the height of your career. It is challenging to make an argument against term life insurance policies being a bad choice. However, they’re not right for every family, which is one reason why there are other life insurance options to choose from.
Some other life insurance choices include:
Whole Life Insurance is coverage that lasts your entire life. Whole life insurance policies also build a guaranteed cash value. When you pay your premiums, a portion of that money will also build a cash value. The cash value will be kept in an account that will earn interest and grow over the years. You can borrow against this cash value at any time. Whole life insurance policies are generally costly and not the greatest option for most families who need a large amount of coverage at an affordable price.
Universal Life Insurance shares some similarities to whole life in the fact that they are both permanent life insurance and have the ability to grow cash value. There are a few differences, though. These differences include how the cash value builds, as well as the flexibility the two policies offer. For example, your payments will be the same every month when you have a whole life insurance policy. With a universal life insurance policy, you’ll have the flexibility to pay any amount between the minimum and maximum payment amount the company gives you. The cash value growth with universal life is not as strong as it is with whole life insurance, keeping the premium cost down.
Guaranteed Universal Life Insurance insurance is a middle ground between term life insurance policies and whole life policies. Guaranteed universal life policies last your entire life but don’t build any cash value. Instead, these life insurance plans are purely designed to offer a low-cost option for guaranteed permanent life insurance. This makes them an affordable option for people who want lifelong coverage without the price tag of whole life insurance. We highly recommend looking into guaranteed universal life insurance if you want permanent life insurance coverage and are not concerned about cash value growth.
Final expense insurance includes a few different policies meant to pay for things like your funeral and medical bills. Final expense plans generally aren’t large enough to replace your income, but they can be a great way to keep your family from receiving large medical or funeral bills. This type of policy is also generally much easier to get approved for, making it a good choice for people who are having trouble getting other coverage due to medical reasons. They are also life insurance coverage that we highly recommend for seniors looking for an affordable permanent life insurance plan with no medical exam requirements and need smaller coverage amounts.
Buying Coverage Later In Life
There’s a lot of information about buying life insurance coverage when you’re young. What about later in life? Is it ever too late to buy coverage? Do you even need coverage once your children are out of the house or your mortgage is paid?
As usual, no one answer is correct. Life insurance is very individualized, and the right time to buy life insurance always comes down to your personal circumstances. However, as a rule, it’s always a good idea to have a policy in place, no matter how old you are.
You might not have as many financial obligations in your later years, especially after you retire, but that doesn’t mean a policy can’t help your family. A life insurance policy can be used to cover expenses such as:
- Medical bills
- Funeral expenses
- Any remaining mortgage or other debt
- Leave an inheritance to your dependants
- Help your spouse maintain your home
Life Insurance Approval for People Over 50
You might have concerns about buying life insurance in your 50s and beyond. You might be worried you’ll only be approved for a rate you can’t afford or that you won’t be approved at all. Fortunately, it might be less expensive than you think to secure a policy.
While it’s true that you’ll pay less when you’re young and healthy, that doesn’t mean a policy, later on, will be out of your budget. Your health is still a factor, so a 50-year-old in great health might still qualify for good rates. Plus, you’ll likely need to take out a smaller policy at this point in your life. Smaller policies can keep your premiums low, even if your age and health put you in a higher-cost rate class.
That’s why it is a smart idea to start by comparing different term insurance policies. If you’re worried a medical exam might lead to denial, a no-exam term policy might be a good fit.
You can get a no exam policy from the comfort of your home by filling out a quick application. You can get up to $500,000 in coverage without taking an exam, and in some cases, your policy can begin right away.
If you’re having trouble qualifying for a standard term or no exam term policy, you can look into final expense policies. Final expense policies offer much smaller coverage amounts at higher rates, but the underwriting requirements are much less strict. Guaranteed acceptance policies, for example, accept almost all applications.
It’s a good idea to use an agent when you buy coverage later in life. They can help match you with companies that are most likely to approve you at a great rate. They can save you hours of research and wasted applications.
Frequently Asked Questions About When To Get Life Insurance
Life insurance is a big decision that requires careful planning, so it’s understandable if you’ve still got questions. We’ve answered a few common ones below.
If I get life insurance from my employer, is that enough?
Not necessarily. While the coverage you can get from an employer is better than no coverage at all, it’s generally not anywhere near the amount you really need.
Generally, employer-based group insurance offers coverage that is less than five times your annual salary. It’s usually 1-2x on most employer-provided life insurance plans.
That’s a lot less coverage than most experts recommend, especially if you have kids. Plus, employer coverage is tied to your employer. If you leave your job for any reason, there may be a chance that you are unable to take your coverage with you.
However, there can be advantages to employer coverage. It’s often free or offered at a very last cost to you, and in most cases, you won’t have to take a medical exam or apply at all. This can be a plus if you’re having trouble securing other coverage. It’s always better to have some coverage than none at all.
If you only have an employer-provided life insurance plan as your sole form of life insurance protection, we strongly recommend looking into getting your own personally owned coverage tailored to your life insurance needs.
Do I need to take out a life insurance policy for my children?
It depends. While there are a few cases when it can make sense to take a life insurance policy for children, it’s not needed in most cases. If you want to have coverage for your children should the unthinkable occur, you can often add a child rider to your own life insurance policy.
A child rider provides temporary life insurance coverage on every child for as long as the parent’s life insurance policy is active or until the child reaches age 25.
You can cover children, stepchildren, adopted children, grandchildren, and any other children you’re a guardian of using this rider. It’s generally much more affordable than taking out a separate policy for each child.
What happens to my policy if my beneficiary dies before I do?
If you know your listed beneficiary has died, it’s normally simple enough to change your beneficiary. You often do this by completing a change of beneficiary form or online with the actual life insurance provider.
However, in some cases, you might be unaware your beneficiary has died. That’s why it’s a good idea to have a secondary beneficiary on your policy. A secondary beneficiary, referred to as a contingent beneficiary, is a person your death benefit will go to if your primary beneficiary dies before you do.
If there are no named beneficiaries, then the death benefit will be paid to the estate and likely to go through probate court when someone tries to claim the death benefit proceeds.
Buying life insurance at the right time will help get the right policy for you. It can help you determine the amount of coverage you need and the type of policy you need.
As a rule, the right time to buy coverage is as soon as someone else depends on your income, but this can look a little different for everyone. Reasons to look into life insurance can include marriage, having children, starting a business, taking in a relative in poor health, and more.
If now is the right time for you to look for coverage, you’re in the right place. At No Medical Exam Quotes, we can show you quotes from the best no exam companies. These companies offer great policies without the need for a medical exam and will even provide you with rates from the companies that do require a medical exam.
Just fill out our short, no-obligation form today to get started.