Why Buy Life Insurance Before I Have a Family?
April 25, 2022
Not a parent? Chances are, life insurance is not on your radar right now. Maybe you’re focused on your career, and building your income and your savings—or simply perfecting your sourdough bread starter or your fitness routine.
Many people assume that life insurance is something you only need to consider down the road, when you’ve got a couple of kids. But that’s not necessarily the case. In truth, most adults, regardless of their age, income, or family situation, benefit greatly from life insurance coverage. And there are potential benefits to buying life insurance earlier rather than later. On top of that, some kinds of life insurance may serve secondary goals.
Ahead, some thoughts about who needs life insurance, plus some good advice about when to buy it.
Myth: I don’t have a mortgage or kids, so I don’t really need life insurance.
Fact: The purpose of life insurance is not merely to protect your children or pay off a mortgage. It can also help settle other debts and provide a nest egg for loved ones.
First of all, did you know that you can choose pretty much anyone you like to be the beneficiary (the person who receives the payout) of your life insurance policy? Many people name their spouse. But you can name your parents, siblings, or other family members as the beneficiary. You can even name a charity. And if your circumstances change, you can change your beneficiary—as often as you need to.
Life insurance can be important if you have personal debt—credit card balances, a car loan, or student loans—that your family would be liable for if you were to die. For instance, if your parents cosigned a private student loan for you, the lender can legally demand full repayment of the loan balance upon your death. The death benefit amount from your life insurance policy could help your parents pay that debt.
Myth: I have life insurance through work so I’m all set.
Fact: Employer-provided policies often offer, at no cost to you, one to two (or sometimes even three) times your annual salary—and that’s a great start.
But many experts typically recommend life insurance that would pay out five to ten times your annual salary. You can sometimes buy this additional coverage through your employer plan, but that can be more expensive than buying an individual policy. Remember, too, that policies offered through work should also be regarded as temporary. Since company-provided life insurance policies are rarely “portable,” you are more likely to lose the coverage when you leave the company. And your new employer may or may not provide equivalent coverage. Having your own policy guarantees a stability of coverage.
Myth: My spouse has a good job and won’t need the payout from my life insurance if I die.
Fact: Even if your spouse or partner makes a good living, funeral costs can be more expensive than you may realize, ranging on average from $7,500 to $10,000, according to the National Funeral Directors Association. A life insurance payout can pick up that cost so your survivors never have to worry about it. Plus: What about other loved ones who may rely on you financially—your parents, extended family, or perhaps a special-needs relative? Life insurance can help to provide them with a valuable safety net or ongoing financial support if something happens to you. It’s not the easiest thing to think about. But knowing your loved ones will be protected can be priceless.
Myth: Life insurance is too expensive for me right now. It’s better if I wait and buy it later on when I’m earning more.
Fact: Life insurance actually tends to be less expensive if you buy it when you are younger and healthier. Life insurance premiums often rise as you get older. Indeed, every year you wait increases the possibility that you might develop a medical issue that could potentially raise your costs or even prevent or delay your being approved for a policy. Buying life insurance early might save you money over the long run and can help you lock in valuable coverage that you will likely need in the future anyway. Buying a policy in your 20s or 30s can be a smart move. The good news: There are multiple options to fit your budget and your life.
Term life insurance, which gives you coverage for a specific period of time, can offer a relatively modest premium. A term policy might be a good choice if you’re looking for coverage that can help provide your loved ones with financial security when they need it most.
Permanent life insurance can be a bigger financial commitment, but it can offer lifetime coverage and other features.
Myth: Life insurance makes no sense for me because it only pays off if I die—and I don’t have any family members to protect.
Fact: In addition to offering a death benefit, permanent life insurance offers a another component, called the cash value or account value, that can potentially grow tax-deferred within the policy.
For example, universal life and whole life policies are two types of life insurance that can offer this feature. The cash value in your life insurance policy can take time to grow, so the earlier you own the policy, the more likely it may come in handy when, say, you need a chunk of money for a down payment on a house. You can also use the cash value to help support your retirement goals, or to borrow from at a lower interest rate than may be available for other types of loans—it’s your money. (Note that a cash withdrawal or a loan may reduce the amount of your death benefit.)
Life insurance has far more relevance to your life than you may have thought—and that’s true if you’re married, single, own a home or rent, have children, plan to have them, or intend to remain childless for the rest of your days. The key, as with any financial product, is to look around, do your homework, and find an insurance policy that matches both your needs and your goals.
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Most adults, regardless of their age, income, or family situation, benefit greatly from life insurance coverage.
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