Life insurance is one of those things you try not to think too much about, especially if you’re in good health, relatively young, and don’t have any children. Yet it’s also one of those things that can be obtained extremely easily if you don’t need a policy, and one of the most difficult things to get if you are in the unfortunate position of facing down a terminal disease and most definitely require it.
But what is the science behind life insurance? Says personal finance writer, Ben Le Fort, it’s a financial tool that’s engineered to protect your family and/or those who depend on you, with a lump sum of money when you die. If your dependents are the legal beneficiaries of the policy, they are the ones who will receive the cash. For example, if you invested in a $1 million life insurance policy and your oldest son is the legal beneficiary, he will get a check for $1 million soon after your death.
Here’s the golden rule of life insurance: If you have children plus other dependents such as a spouse who are dependent on you financially, you need to have some sort of life insurance. Again, if you’re healthy it’s easy to get, and all you have to do is ask a local life insurance representative or go online to generate a custom quote for you. It’s a fact of life that you will die one day, and if it should happen suddenly and unexpectedly, and you are not insured, it could leave your dependents in financial dire straits.
But what if you don’t have children? Do you still need to pay for a life insurance policy? If you’re under 25, in great health, single and making an income, you probably don’t need to worry about a policy quite yet. However, as you begin to age, there are some very good reasons for investing in a life insurance policy. Here’s just three of them.
1. You Should Guarantee Your Future Insurability
If you’re young, healthy, without dependents, and the world is your oyster as they say, you can get a hefty life insurance policy for relative pennies. But what’s the catch? You don’t really need a policy.
However, according to Le Fort, as you age, get married, have a couple kids, you also take on financial dependents. If you still don’t have life insurance by then, it might become more difficult to get a big policy on the cheap since the insurance company will be taking on more risk. It will be especially difficult if you have acquired a health issue—something that happens all too often as we age.
The moral of this story? If you plan on getting married one day and having a family, maybe the right time for getting a life insurance policy is when you’re young. This will “lock in your insurability,” states Le Fort.
2. If You Have Become a Homeowner
Le Fort also stresses that one of the worst types of insurance policies you can purchase is mortgage life insurance. This was invented not for the benefit of your financial dependents, but instead, the bank which holds your mortgage. It might pay off the balance of your mortgage when you die so someone like your wife doesn’t have to, but unlike life insurance, mortgage insurance coverage gets smaller and smaller every month you own it.
But guess what? The premiums remain the same for the duration of the time you own your home. Not a very good deal, is it? Your better option is to instead take out a personal life insurance policy that will not only benefit your loved ones in case of your sudden death, it will also pay off the balance of your mortgage. The monthly premiums are also said to be lower than mortgage life insurance.
3. You’ve Become a Business Owner
Being a business owner puts you in a similar position as that of a family guy, especially if you share the business with partners. Like a family man, your partners are financial dependents. Conversely, you are a dependent of your partners, that is, if you all have equal shares in the business.
For example, if your business is worth $1 million, your partners and yourself should each invest in life insurance policies worth $500,000. If you or one of your partners dies, the cash settlement will be enough to buy out the deceased’s portion of the company from the family beneficiaries who would otherwise inherit the financial business interest. What this also does is prevent you from having to enter a legal battle with the deceased partner’s family.
Life insurance isn’t something you enjoy buying because not only does it remind you of our own mortality, but because if you’re feeling healthy and young, you just don’t believe you need it. But as you age, and take on more responsibility, be it familial and/or financial, you absolutely need to carry a certain amount of life insurance for those people who depend upon you for their financial existence.