Insurance sometimes feels necessary, like when it comes to your car as you use it daily and don’t want anything to get in the way of carpool and work runs. But other types of insurance sometimes feel like you’re shelling out money for something that isn’t helping you right now – life insurance, we mean you!
In fact, all thoughts of life insurance might get thrown onto the backburner while you’re dealing with a range of other expenses flying at you. If you’ve been avoiding it like a dentist appointment, here’s why you should make it a priority.
Studies show that almost 70 percent of single parents who have children living at home don’t have life insurance. The reasons for parents not being interested in life insurance might come down to them feeling that they can’t afford it or it’s a waste of time, especially since you’re (hopefully) not going to need it any time in the near future. The hesitation could also stem from feeling life insurance is something confusing or complicated. It doesn’t have to be!
Read on to discover some important tips when choosing life insurance and why it’s so important that you have it.
- Know the Different Kinds of Insurance
There are two main types of life insurance you should know about: permanent life insurance or term life insurance.
- Permanent life insurance is also known as ‘whole life’ insurance because all the money you deposit into these policies will increase in value and you can borrow from the sum if some emergency comes along. You will be paying premiums for the rest of your life, most likely. Some benefits of whole life insurance is that the premiums never increase and you gain protection for life without it decreasing in value.
- However, there’s another option and it’s called term life insurance which will cover you for a certain amount of time. You could specify 10, 20, 30 or more years, for instance, depending on how much time you need. Term life insurance is handy in that you can stop paying when the need is no longer around, such as if you’ve been paying for your children’s college and they’ve graduated. The catch is that if the policy reaches its end and you haven’t used the money, you won’t gain any benefit. If term life insurance sounds appealing but you have extra money at your disposal, you could choose to invest it in a 401k which would lower your taxable income.
- Alleviate Possible Financial Stress
The idea of paying life insurance while you’re battling with so many other expenses shouldn’t put you off the idea. You can tweak your policy should you run into financial difficulties. This is something important that you should speak to your life insurer about. You want your policy to be flexible and offer you a chance of still gaining cover should rainy days turn into hailstorms. If you, say, have chosen a whole life insurance policy and it’s proving to be too expensive, you could convert it into a term policy instead and then make use of the cash savings to cover your premiums.
- How Much Life Insurance Should You Get?
Life insurance doesn’t have to seem like a mammoth amount of money. Calculating how much you need probably feels confusing, especially if you know that it should cover things like funeral costs, daily and living expenses, as well as education, but how much should you really get? For a general estimate, multiply your gross annual salary by 10 – this is a minimum amount.
However, for a more detailed analysis, a good idea is to calculate the numbers with a financial planner who will charge a fee instead of one who earns commission from selling insurance. You can find one from the National Association of Personal Financial Advisors.
- Choose the Right Beneficiary
Who will be the beneficiary of your insurance? Your knee-jerk reaction might be to name your kids, of course, but bear in mind that life insurance companies won’t pay out policy proceeds to a minor so it’s more beneficial to your children to set a trust for them but name it as the beneficiary. Another option is to choose an adult who will be able to accept the payout on behalf of your children if they are underage.
Not getting life insurance is one of the biggest financial mistakes you can make as a parent. Follow the tips above to ensure that you maintain a bright future for your kids while avoiding stress so you can get on with the joys of parenthood.