Life Insurance 101

You may think you don’t need life insurance, and you may even be right. So ask yourself this: Does someone’s wellbeing depend on my income and me? Yes? Then life insurance can help protect that child, spouse, life partner, or parent if you no longer can.

Even if you’re young and single, life insurance often makes sense. Say, for example, that you have substantial student loans—not all student loans are discharged upon the death of the borrower. A basic term life insurance policy can be an affordable way to ensure that paying off this debt doesn’t become someone else’s burden. Besides (spoiler alert), none of us is indestructible, and funerals aren’t free.

Choose the right insurance

There are two main types of life insurance: term and permanent. Premiums for both types of policy depend on your age when you take it out, your gender (women live longer than men), and your general health. You don’t always need a physical exam, however, and some providers offer policies online.

• Term insurance is much less expensive and is often the choice of young families that want some protection at an affordable price. You buy coverage for a certain span of time, whatever makes sense for you and your family, and after that set amount of years the coverage expires. Term insurance can be a good fit for parents whose adult children become financially independent and no longer rely on them for financial support.
• Permanent insurance lasts for your entire lifetime. There are two main types of permanent life insurance: Whole life offers consistent premiums and guaranteed growth of the policy’s cash value. Universal life offers flexibility in premium payments, death benefits, and the savings portion of the policy.
  
  Both whole and universal policies help provide for long-term goals, but if you prefer a set death benefit and level premiums, consider a whole life policy. If you’re prepared to weather fluctuations in interest rates in return for potentially lower premium payments and greater increases in the cash value of your policy, then universal life may be the better choice.

Buy enough protection

You may be able to get coverage through your employer, but not always as much as you need. The $25k to $100k term policies that you usually see in employer group plans may cover your funeral expenses, but they’re not going to pay off a mortgage or put a kid through college. And if you’re self-employed, you’re on your own. So give careful consideration to the amount of protection that’s right for you and your family. Some experts recommend replacing up to 10 times your annual income.

Consult a pro

Term insurance is straightforward and easy to purchase on your own. Just be sure you buy sufficient coverage, and from a reliable insurer. Permanent insurance is more complicated with more moving parts, so put in research or consult a professional—otherwise, you could waste a lot of money and still leave your dependents unprotected.