When Do You Need to Purchase Life Insurance?
If you’re a healthy adult, where to buy life insurance might be the last thing on your mind. After all, most of us don’t think about what will happen after we’ve passed away. Nevertheless, it’s wise to start thinking about life insurance sooner rather than later.
Life Insurance Statistics
Before we examine when it’s a good time to purchase life insurance, let’s look at some life insurance statistics from the Insurance Information Institute — or III:
- In 2018, approximately 50 percent of adults sought information about life insurance online.
- In 2018, almost 33 percent of adults tried to buy or bought life insurance online.
- Consumers significantly overestimate how much life insurance costs.
- More than 40 percent of Millennials overestimate the cost of life insurance by 500 percent.
- Approximately 50 percent of all consumers agree they would be more inclined to purchase life insurance that was priced without them having to take a physical.
- Among adults who have life insurance, around 20 percent believe they don’t have sufficient coverage.
Who Would Be Financially Impacted?
So when is it a good time to purchase a life insurance policy?
The answer is: When one or more people such as your spouse, children or parents would be adversely impacted — financially speaking — by your death.
This can be because you have debts, such as student debt, credit card debt, a personal loan or a mortgage. For example, if you have a student loan and your parents co-signed on it, they’re responsible for it if you pass away. Similarly, if you have credit card debt or a mortgage, the person who inherits your estate is responsible for them.
It can also be because there are people who rely on your income, for example, your spouse, children or elderly parents who live with you. What will happen to them? Who’ll pay for their day-to-day expenses, education costs or medical bills?
In these types of situations, a life insurance policy can provide the financial support your loved ones need to keep living their lives.
How Much Life Insurance Do You Need?
The amount of life insurance you need depends on your situation. For example, if you only need it to cover any unsecured debt in your estate, then you can purchase a policy for the same amount as your debt. But if you want to provide for your loved ones after your death, you’ll need to take multiple factors into account.
Nerdwallet advises using the DIME formula:
- Debt plus final expenses: Add up any student, car or personal loans you have, along with your projected funeral expenses.
- Income: Multiply your annual salary by the number of years your loved ones would need your income.
- Mortgage: Find out how much you still have to pay off on your mortgage.
- Education: Estimate how much your children’s college education will cost.
Once you have these four numbers, add them up to determine an estimate of how much your life insurance policy should be worth.
How to Find the Right Life Insurance Policy
Purchasing a life insurance policy isn’t something to undertake lightly. You want to make sure that the type of policy, as well as its value, are right for your situation. That’s why you’re best advised to work with a knowledgeable insurance broker like Grand Mutual Insurance Services. Your life insurance quote is waiting!