What's the Meaning of Life ... Insurance?
Why It Matters:
• Life insurance should be a key consideration in your financial strategy.
• While not an easy topic, you might find purchasing a policy helps bring peace of mind.
• How much coverage you need depends on your current circumstances and your future plans.
• Premiums may increase with age, so the sooner you act the more you might save.
Woody Allen once wrote, “I’m not afraid to die. I just don’t want to be there when it happens.”
Understandably, death is something most of us would rather avoid altogether. And, for that reason, the subject is often hard to even talk about. But in terms of preparing financially it’s an important topic to address, especially when it comes to those left behind in the event of one’s passing.
Many people find that purchasing life insurance actually helps bring peace of mind as they make decisions regarding the future. It helps to think about it like this: If you’ve worked hard to build the quality of life you enjoy, you want to protect that for your loved ones if something were to happen to you.
According to the 2021 Insurance Barometer Study by LIMRA, 70% of Americans believe they need life insurance. However, only 52% of American adults own some form of life insurance coverage.1
As you evaluate your own situation, here are a few questions to consider:
Do I even need life insurance?
The short answer: probably. There are plenty of factors to consider when deciding to purchase any type of life insurance. If you’re young, debt free, single, and with no dependents, acquiring a policy might not be top of mind. But know that as your life changes, your need for life insurance evolves.
If you plan to eventually get married or start a family (or both), you’ll want security for your spouse and children. Purchasing a policy at a young age could save you money on premiums because costs tend to increase with age. And as personal circumstances change, you may ultimately adjust the type of coverage appropriate for your needs. Different options provide coverage for any number of life stages. An agent can help guide you through the planning process.
How much coverage do I need?
You may say to yourself: How do I put a price tag on all of this? Valid question. And as you can imagine, many considerations influence an appropriate amount of coverage. Easing or eliminating financial burdens (both current and forecasted) for a spouse and dependents is likely the key deciding factor. Some categories to assess:
Think about short-term debt (like credit cards), and long-term debt (like an auto loan or mortgage). The average household credit card debt is more than $6,700 and the total owed by an average U.S. household carrying any kind of debt — including mortgages — is over $149,000.2 Of course, the amount of debt an individual or household carries may fluctuate through various life stages.
Look beyond the basic food, clothing and shelter needs of your spouse and family. Will there be increased child care costs, schooling or other expenses without you? If you’re the primary breadwinner, that loss of income plays a significant role in planning.
If your financial strategy includes funding college for a child, add that to your consideration set. Since the year 2000, public institutions have increased tuition costs by 65% and private non-profit institutions have increased them by 50%.3 Perhaps you already have a college plan started. That’s great. But think about how it will be funded without your income.
Beyond these categories, consider additional items like funeral costs or other end-of-life expenses. According to Good Financial Cents, a funeral can cost up to $15,000.4 And, depending on circumstances, accounting for quality of life and comfort for your family can help dictate a certain financial cushion. Yes, it’s a lot to contemplate, but an agent can help you calculate more accurate figures that reflect your specific situation.
When is the best time to buy life insurance?
Technically, there isn’t a definitive answer. The cost of insurance generally gets more expensive as you get older. Aging, and the associated decline in health that comes with the miles on our biological odometers, contribute to the costs you’ll pay.
Other life circumstances can affect costs as well. Your current health and health history (including your parents’ history) play a part. A medical exam and associated tests will help determine overall health. Blood pressure and cholesterol scores weigh in, so there’s no time like the present to get those numbers in line. Note: Here comes a suggestion you may or may not want to hear. If you smoke, consider this one more reason to quit. Smokers pay higher premiums for life insurance.
In addition to health, other lifestyle factors will be taken into account. Your driving record can impact more than just your auto insurance premiums, so take it easy out there. And, some people are surprised to learn, even hobbies make it into the equation. Do your weekend plans regularly include skydiving, or are your aerial interests limited to bird watching at a nature preserve?
Admittedly, there’s a lot to take in and a lot to evaluate. The good news is you may be surprised to learn how affordable many of the options can be. And, as stated early on, you may just find some peace of mind knowing that you’ve helped provide a secure financial future for your family and loved ones should anything happen to you. It’s hard to put a price on that.
Things to Consider:
• If you have a spouse or dependents, chances are you’re a good candidate for life insurance.
• To determine the appropriate amount of coverage, weigh things like short-term and long-term debt; family plans like college and retirement; daily living expenses your family could face without your income; and end-of-life costs. An agent can help with calculations.
• Don’t wait too long to take action. Not only can rates rise with age, the security that comes with owning a life insurance policy will let you focus on what’s important: living life.
1"2021 Insurance Barometer Study," LIMRA, April 2021
2 "2020 American Household Credit Card Debt Study," NerdWallet, January 2021
3 "College Tuition Has Increased — But What's the Actual Cost?" USAFacts, September 2020
4 "Average Funeral Costs and Expenses," Good Financial Cents, July 2020
Transamerica Resources, Inc. is an Aegon company and is affiliated with various companies which include, but are not limited to, insurance companies and broker-dealers. Transamerica Resources, Inc. does not offer insurance products or securities. The information provided is for educational purposes only and should not be construed as insurance, securities, ERISA, tax, investment, legal, medical or financial advice or guidance. Please consult your personal independent professionals for answers to your specific questions.