(Almost) Everything You Need to Know About Life Insurance
By Pekin Insurance · Feb 24, 2020 ·4 min read
Your life is a long journey, and you spend years traveling to a huge mountain. When you finally get there, you climb until you can look down and enjoy the view.
Unfortunately, you don’t always make it to the peak. That’s why you shouldn’t continue your quest without “packing” some life insurance.
After you leave the picture, life insurance can help your loved ones cover:
- Car payments
- Student loan debt
- Monthly bills
- Final expenses
- And more!
Your Map - Stock Up on Life Insurance Answers
You’re eager to set off and cover more ground. Before you leave, take a seat and read this life insurance map.
How Life Insurance Works
Here’s how life insurance works:
- You apply for coverage.
- You take a quick medical exam depending on what plan you choose.
- You pay the life insurance company for coverage if you’re approved.
- You name a beneficiary or beneficiaries.
- The beneficiaries receive a payment (also known as a benefit) after you die.
How to Choose Beneficiaries
Think about who needs the benefit after you’re gone. Consider your spouse, partner, children, grandchildren, or a charity.
Name more than one beneficiary in case one of them passes away before you do.
Minors can’t receive direct life insurance benefits. Name a trust as a beneficiary if you want a minor to receive the payment. This way, a guardian will look over the funds until the minor turns 18.
How Much Coverage You Need (No Magic Number)
Some experts say you should have 10 to 12 times your yearly income in life insurance. There’s no real magic number, though.
First, calculate how much you pay for:
- Car payments
- Living expenses
- College loan payments
- Final expenses (the average funeral costs somewhere between $6,500 and $8,800)
Combine your financial obligations with how much you want to leave behind. That should give you a solid ballpark figure.
Your Employer Offers Life Insurance. Is It Enough?
Does your employer provide enough life insurance to cover one or two years of your salary? That’s a good start, but what happens after you leave your job?
Your group life insurance will either:
- Drop, leaving you with no coverage, or;
- Continue if you can convert your plan into a personal policy.
It’s legal to have more than one life insurance policy. Rely on an independent agent to help you pick the right plan!
Surviving the Forest - Your Younger Years
Your twenties play out like a trip through a confusing forest. You make a torch and navigate around twists, turns, and towering trees.
You try not to get lost in the “big” questions:
- What will I do with the rest of my life?
- Can I survive student debt?
- Should I start a side hustle?
When you’re young and single, hold on to your sense of direction with a back-up plan: life insurance.
A Definition of "Single"
From a social perspective, “single” could mean:
- You aren’t in a relationship or looking for one.
- You’re dating, but not seriously.
From a legal perspective, “single” means you aren’t married.
Easy on the Wallet
Your Family Medical History
Does your family medical history include cancer or heart disease? If that’s the case, you should consider applying for life insurance early in life.
Young, healthy applicants receive lower rates that go up as you age.
College Costs Continue to Climb
University costs have increased nearly eight times faster than wage growth between 1989 and 2016. Tuition and fees will continue to climb.
Need proof? Check out these stats from the College Board College Pricing Report:
- $21,950: average in-state tuition and fees for public four-year sector
- $26,820: average out-of-state tuition and fees for public four-year sector
- $36,880: average tuition and fees for private four-year institutions
Trade School vs. College
Trade school offers lower tuition and more job-specific training. Plus, most of their programs take less time to complete.
Trade school degrees could lead to these careers:
- Graphic designer
Still, the average trade-school degree costs $33,000, according to Hub & Spoke.
Where Student Loans Go
Who would take care of your student debts if you die before repaying them? Federal student loan debt usually gets canceled when a person dies before paying it off.
Private student loans don’t work like that. A co-signer would pay off the remaining balance in a worst-case scenario.
Think about a term life policy as a back-up plan for your college debt. With term life, you have coverage for a set amount of time like 10 years.
Term life coverage serves two purposes:
- It creates an affordable financial plan.
- It can protect your loved ones if they inherit your debt.
Climbing the Foothills – Starting a Family
You thought you’d never make it through the forest of your younger years. But you did it!
You picked up a traveling companion along the way, too. Now you have foothills to climb and new challenges to conquer.
Here’s how life insurance can offer aid through this part of your quest.
Your Home Costs Add Up (and Up and Up)
The average monthly mortgage payment falls somewhere between $1,022 and $1,505. That's $12,264 - $18,060 per year.
The cost for maintaining your home depends on:
- Where you live and the weather in your area
- The age of your house
- How many pets you have:
- You might need to replace filters and carpet more often.
- How many children you have:
- Kids have been known to color on walls and throw baseballs through windows.
You have to keep the electricity, water, and other utilities running, too.
Move.org says average utility costs in the U.S. total $398.24 per month:
- Electricity: $110.76
- Natural gas: $72.10
- Water: $70.39
- Trash/recycling: $14
- Internet: $60
- Cable TV: $85
Would your family be able to cover the mortgage and monthly expenses if you left the picture?
Daycare Can Be More Expensive Than College
Child Aware of America says childcare costs more than college tuition in 28 states. Their study includes center-based daycare and family-based care.
It doesn’t stop there. Over 70% of families spend more than 10% of their income on children, according to the Care.com 2019 Cost of Care Survey.
Think about what your family would do without you. It’s not a happy thought, but it’s worth considering.
That’s where life insurance comes in. It helps your loved ones pay for ongoing education and development, whether it’s daycare or college.
From Clunkers to Luxury Vehicles
Nerdwallet says $8,649 is the average ownership cost for vehicles driven 15,000 miles per year.
Even if your kids drive family hand-me-downs, someone has to pay for:
- Registration and fees
- Car insurance
- Maintenance and repairs
The good news: life insurance can cover the costs of vehicle ownership.
The Pitfalls of Crowdfunded Funerals
Take a look at these average funeral costs from the National Funeral Directors Association (NFDA):
- $6,585 – cremation
- $8,755 – traditional burial with a cemetery vault
You can pay for final expenses with life insurance, and it's a great way to avoid a crowdfunded funeral.
With a crowdfunded funeral, someone in your family would set up an online fundraiser to help pay your final expenses.
Doing this would put financial pressure on your loved ones. Plus, there's a possibility of not hitting the goal.
Stay-At-Home Parents Need Life Insurance, Too
According to salary.com, a stay-at-home mom's work would command a $178,201 salary because of the roles she fills:
- Academic advisor
- Facilities director
- Laundry manager
- And more
It might not cost you exactly $178,201 to replace these services, but it also wouldn't be cheap.
The years pass, and you reach the base of the mountain. We hate to leave you hanging, but we'll let you know how the story ends later in 2020!
For now, contact your local Pekin Insurance agent to start the life insurance conversation!