At some point in life, you may ask yourself whether you should buy life insurance. And while it may not be something we give much thought to, especially when we are young, getting your life insured should be a priority.
Life insurance is a contract through which you pay a yearly premium for a long period of time or the whole life and in exchange, the insurer will pay a sum of money to your beneficiary in case of your death.
How does life insurance work?
So you decided to get life insurance but you don’t really know exactly how it works. Here is what you need to know.
First of all, there are two main types of life insurance – term and permanent.
Term life insurance: consists of a contract made one a limited period of time that usually goes from one to 30 years. This life insurance will pay the beneficiary if the death of the insured occurs within the said period of time. Term insurance can be of two types – level term and decreasing term.
Permanent life insurance: allows the beneficiary to be paid whenever the insured dies. This category is further divided into whole life, universal life, and variable universal life insurances.
Another question to ask yourself is how much insurance you need. This may depend on a number of variables such as your debt, whether you have children or whether you have a business. The yearly premium will vary based on the amount you wish to buy as well as other factors such as your age and sex – usually men are more expensive to insure.
There are different ways to calculate how much life insurance to buy. One simple rule is to multiply your yearly income by 10. The recommendation is also to buy a little more insurance than you calculate you may need.
Why should you buy life insurance?
Having life insurance will give you the reassurance that your family members will not be left to deal with financial hardships after your death.
In case of your premature death, your next of kin would have to assume all your debts. This could be your spouse, your siblings, or your parents. Having life insurance will make their life easier.
If you have children, their life may be heavily affected after your loss, not only emotionally but also financially. Life insurance benefits can cover costs such as college, living expenses as well as any debts you may leave behind.
When should you buy life insurance?
The sooner the better. The reason why you should buy insurance when you are younger is very simple: it’s cheaper. The premium on life insurance increases with age and there can be a significant difference in the premium you need to pay at 35 or at 40. If possible, try not to wait too long before buying your life insurance.