In your absence, life insurance can assist your family and dependents in covering vital expenses such as childcare and mortgage payments.
Even if you’re certain of the value of this financial tool, you may be unsure of when to prioritize its purchase. Here are three indicators that you should spend a weekend or two shopping for insurance.
You have people who depend on your income
Having people in your life who rely on your income, whether it’s your husband or small children, is a sure sign that you should consider life insurance.
“It serves many purposes, but traditionally it is used if someone else is financially dependent on you,” says Eric Kirste, a certified financial advisor at Savvy Wealth. Life insurance can help your family by providing money, known as a death benefit, if you die while covered by the policy.
In this circumstance, there are two forms of life insurance to consider:
- Term life insurance covers you for an amount of time specified in the policy, generally between 10 and 30 years. After that term expires, there’s no coverage, but this type of life insurance is generally more affordable than a permanent policy.
- Permanent life insurance stays in force for your entire life and can accumulate cash value, an amount that earns interest and can be borrowed against for future expenses.
The cost of term and permanent life insurance is one of the most significant distinctions. “Term insurance meets a temporary need and is inexpensive,” explains Kirste. Term insurance are designed to cover short-term conditions, such as having small children or possessing a mortgage. Permanent life insurance is more expensive and is intended for those who desire to leave an inheritance to their children or accumulate cash worth in the policy to use later in life.
You are a caregiver to someone at home
Someone may rely on you for more than just a wage. If you care for a child (or anyone else) full-time, you should consider life insurance even if you don’t earn a living.
“If something were to happen to that person providing childcare, there are other things that they’re going to be doing at home for the other partner,” Kirste explains. “And it has a monetary value.”
As a stay-at-home parent, having life insurance can help pay your family’s bills if you pass away. The average cost of hiring a nanny is approximately $694 per week, according to the caregiving platform Care.com, and can be considerably more in places with a higher cost of living. If necessary, the correct life insurance coverage could assist your partner and family in maintaining their standard of living.
You have a mortgage
A mortgage is a popular reason for getting life insurance. If you purchased your house with a partner, you’ll want to ensure that they’ll be able to continue making mortgage payments.
When determining how much life insurance you need, experts recommend taking your mortgage into account. While a death benefit of 10 times your annual income is a good starting point, your actual need may vary based on your mortgage. When selecting how much life insurance to get, Kirste suggests considering both your mortgage debt and your future earning possibilities. “It’s a larger number than the debt,” he argues.
If you have a mortgage or are purchasing a home, life insurance may allow your partner or spouse to continue living there even if you die.