In the technical sense, life Insurance is a contract between an insurance company and the insurer that agrees to pay out a specific amount of money should the insurer die. The insurer (also known as the policy holder) makes premium payments, either monthly or in one lump sum, to cover the cost of the insurance.
Payouts of the policy are paid to the beneficiaries to cover expenses, funeral costs, and any other unfinished monetary problems the insured may have had. So, now that you know what life insurance is, how do you know if you need it? The CGS Team is covering life insurance basics to help you determine if you really need it or if it’s just nice to have for your situation.
Life Insurance as a Benefit
Before we get into paying for life insurance, you should make sure you don’t already have it! Some employers offer a very basic life insurance policy for their employees. The policy typically pays out a year’s worth of salary the employee has at time of death. Larger companies don’t charge for this benefit, it’s simply done on the company’s behalf.
Life insurance packages may be offered by your employer for a small fee. Similar to health insurance, you may have the option to also purchase life insurance coverage on an as-needed basis.
Need or Want?
When trying to figure out if you truly need life insurance, it all comes down to one main thing: do you have people who depend on you financially? If the answer is yes, then ask yourself: would those people be okay if I wasn’t around? If that answer is no, then consider life insurance. The point of life insurance is to pay out your beneficiaries if something happens to you, especially if it’s sooner than expected.
It’s generally recommended that you purchase life insurance worth five to eight times your annual salary, but the amount can vary depending on what financial needs your beneficiaries have. If you have children and parents who rely on your income, you need to consider both of their financial needs.
Types of Insurance
There are plenty of options when it comes to picking out your life insurance plan. Term life insurance is often the cheapest and is typically better for those who are in their 20s or 30s. You choose the term based on how many years you expect your beneficiaries to rely on you financially. Make sure your policy is renewable so that coverage continues after the initial term ends. Cash value/whole life and universal policies are also available, however those are more costly than term coverage and is often better for those older in life.
If you decide that you actually do need life insurance, first check to see if the benefit is offered by your employer. If not, consider getting quotes from major companies like MetLife, Geico and Liberty Mutual. Those quotes may be high, but it gives you a starting point when approaching smaller, local companies.
Unfortunately, unexpected things happen all the time. A smart woman is a prepared woman, so if you have people depending on you, get yourself insured. Do you have life insurance? Does your employer offer life insurance benefits? What are your thoughts on deciding if you really need it? We want to hear from you! Let’s get vocal about all things finance! Leave a comment below to share your opinions and feedback with the CGS community!