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Life insurance isn’t one-size-fits-all, and the right policy for you will depend on where you’re at in your life. There are also a few situations where you might be able to do without life insurance — like if you have enough savings to self-insure.
These people often have the greatest need for life insurance.
You might not need life insurance if these situations apply to you:
Since most parents don’t rely on their children financially, life insurance usually isn’t necessary — and a 529 plan may offer better financial protection.
However, there are a few cases where it’s worth considering buying a policy for your child:
Anytime you’ve introduced a new debt or dependent into your life is a good time to think about your finances in general. Many people get life insurance after a major milestone, such as having kids, buying a house, getting a new job or getting married. But you might also consider it if you’ve graduated from college, gotten divorced, seen your kids graduate, adopted a pet or taken out a loan.
According to a recent study by Erie Insurance, most people consider life insurance a necessity when they:
Not exactly. However, the younger and healthier you are the lower your life insurance rates will be. The level of coverage to buy will depend on your income, expenses and needs — and it might make sense to adjust your coverage as you age.
|Age||Life events||Financial obligations||Types of insurance to consider|
|55 and Over|
The main types of insurance available are:
These types of coverage offer added protection for needs outside of a death benefit and may be useful in different stages of your life:
When you’re deciding how much coverage to buy, consider the following.
As you inch closer to your retirement, you’ll likely have less financial obligations — and therefore, less of a need for life insurance. But a life insurance policy after you retire can help you to:
Life insurance, health savings accounts and retirement accounts are all designed to serve different needs.
Health savings accounts. Whether it’s a Flexible Spending Account (FSA) or a Health Savings Account (HSA), these vehicles offset the cost of health insurance deductibles. Unlike an HSA which can be accumulated in one year and “banked” for future use, FSAs have to be used for expenses incurred during the calendar year in which the funds were accumulated. In most cases, the amount of money that can be accumulated in either account would not be enough to provide the kind of protection the next two types of policies would.
Retirement accounts.These are intended to be used while a person is alive. They offer a flow of income during a person’s retirement to allow them to maintain their lifestyle when they’re no longer working.
Life insurance. This protects against the untimely death of a person whose income is needed by their beneficiaries. Money can never replace the loss of a loved one, but it can create the time and economic security needed for someone to make future decisions.
Life insurance is a very important part of any good financial plan. When you solely rely on growing your savings either via a retirement account or any other financial savings vehicle, you’re counting on the idea that you’ll live long enough to be there to fund that account.
In addition, there are usually tax consequences when accessing money from retirement funds. But with life insurance in place, a beneficiary is guaranteed 100% of the death benefit tax-free, and there is no need to go through or wait for the probate process to take place.
Life insurance is the best way to replace income lost due to an unexpected death.
Once you’ve determined a need for life insurance, the next step is figuring out how much coverage to buy.
To crunch the numbers, add up the cost of your financial obligations and assets, including DIME: Debt, Income, Mortgage and Education. Then, aim to take out a policy with a face value to match.
Another simple way to calculate coverage is to multiply your annual salary by five or 10. So, if you currently earn $50,000, you might buy a $250,000 or $500,000 policy.
If you have children or loved ones who depend on you financially, a life insurance policy can help to provide for them when you’re no longer able. Compare life insurance policies from different insurers to find the coverage that best suits your needs and budget.
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