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Life insurance is an important safety net that can offer peace of mind for your loved ones in your absence. However, it’s understandable that many people are uncertain about when exactly is the right time to purchase life insurance. We’ll help you understand when life insurance may be right for you, and why it's important to act sooner rather than later.
Why buy life insurance?
A life insurance policy can ensure that your family’s financial well-being is safeguarded, regardless of life’s uncertainties. If you have dependents who rely on your income to pay for living expenses, such as a mortgage, car payments, or school tuition, life insurance can provide protection that ensures they are taken care of even if you're no longer there to provide for them. Although many employers provide a small amount of life insurance as part of their benefits package - for example $50,000 - most individuals have a need for additional coverage.
The best time to buy life insurance
Life insurance premiums are typically based on age and health, so the younger and healthier you are when you buy it, the less expensive it will be. As you age, you may be more likely to develop certain medical conditions. Someone with a serious medical condition will not only have a much higher cost for life insurance, but they may be denied the coverage amount that they need.
Suppose you're a healthy 30-year-old and decide to buy a 20-year term life insurance policy with a $500,000 death benefit. The annual cost for this policy might be around $350 per year. However, if you wait until you're 50 to buy the same policy, your annual cost might be closer to $2,000 per year.
Life insurance may not be necessary in certain situations. For instance, if you have little or no debt, and don’t plan on having dependents like children or a life partner. However, if you think these circumstances could change, it's best to purchase life insurance before an immediate need arises.
Types of life insurance
When it comes to purchasing life insurance, it’s important to think about the type of policy that suits your needs. There are two main options to consider: term life insurance and permanent life insurance.
Term life insurance provides protection for a specific period (normally 10, 20 or 30 years). If you are working with a tight budget, or you only need protection for a limited number of years, you may consider a term policy. This type of policy is usually less expensive than permanent life insurance, since it ends after a certain time period. Many people choose the length of their term insurance to align with a particular debt or expense that will end after a number of years, such as a mortgage. Although term policies are more affordable, it’s important to keep in mind that if you outlive the term, the policy will expire. This means your beneficiaries won’t receive any coverage beyond that time period.
Permanent life insurance provides protection for your entire life - even if you live to 100 - as long as it's paid for each year. This type of life insurance is typically more expensive than term life insurance, since it never expires. Permanent life insurance also includes a savings component, which can accumulate significantly over time. This savings component can be helpful for someone who finds it challenging to consistently save money on their own. Like term insurance, the proceeds of permanent insurance are generally tax-free to beneficiaries when the policyholder passes away.
Seek guidance from a professional
Life insurance costs go up with age, so there’s no better time than the present to consider purchasing a policy. The younger and healthier you are, the lower your premiums will be - regardless of whether you opt for a term or permanent policy. The decision to buy life insurance is a personal one, and it's best to speak with a financial professional to determine the best policy for your needs. A financial planner at Domain Money can help you further understand the differences between policy types, calculate the amount of coverage you need, and present suitable options for you and your family today.
