Life Insurance 101
No one really wants to think about life insurance. But if someone depends on you financially, it’s a topic you can’t avoid. Getting life insurance doesn’t have to be hard (or boring). We have some answers to common questions about life insurance so that you can make informed decisions about protecting your loved ones financially.
Why is life insurance worth it?
Life insurance is important because it’s a simple answer to a very difficult question: How will my loved ones manage financially if something were to happen to me?
What are the different types of life insurance?
Life insurance generally falls into two categories:
Term Life Insurance provides protection for a specific period of time (the term), often 10, 20 or 30 years.
Permanent Life Insurance provides lifelong protection, as long as you pay the premiums.
What are living benefits of life insurance?
Living benefits of a life insurance policy let you access your life insurance proceeds before you die. This is typically reserved for situations in which someone faces a terminal illness or injury. Many people use cash from living benefits to get their family’s finances in order or to take a special trip.
Living benefits, which are also known as accelerated death benefits, are typically available as a rider (or endorsement) to your life insurance policy.
What is the average life insurance cost?
The price of life insurance depends on four main factors: your age, your health, the type of policy and how much coverage you buy. In general, you’ll pay less the younger and healthier you are. You also typically pay less for a term life policy than a permanent life policy.
That said, don’t let your age or health status discourage you from considering life insurance. There are policies available for people of any age as well as those with high blood pressure, diabetes and a smoking habit. (Just know that you’ll generally pay more for your policy if you’re in poor health and/or smoke.)
Still wondering the answer to the question of how much does life insurance cost? If so, here’s a working idea:
A healthy 30-year-old can get a $250,000 20-year level term policy for just $13 a month.
That means that if you purchase that policy and pay the $13 a month without fail, your loved ones would get $250,000 if you were to die at any point during those 20 years.
Do I need life insurance?
That’s a great question. And the truth is not everyone does. But ask yourself, “Would someone suffer financially if I died?” If you answered, “Yes,” then chances are you need life insurance.
As an easy rule of thumb, experts recommend having life insurance that equals between 10 to 15 times your gross income. But many people need even more than that.
Myth-Busters
According to a recent survey, about a quarter of people accepted five common myths and misconceptions about life insurance. Some of the top reasons they have for not owning life insurance (they can choose more than one)
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81% – It’s too expensive
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75% – Have other financial priorities
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65% – Not sure how or what type to buy
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62% – Haven’t gotten around to it
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51% – Don’t like thinking about death
One of the biggest myths around life insurance is that it’s expensive, but the majority of people overestimate the true cost of life insurance by 3x or more and 44% of Millennials thought the cost of term life insurance policy was more than $1,000 a year when it’s closer to $160.
A healthy 30-year-old can get a $250,000 20-year level term policy for just $13 a month.
Life Insurance Facts and Needs
While many American’s recognize the importance of Life Insurance as providing both peace of mind and security to families that are confronted with the passing of a loved one, statistics still show the need for greater awareness of life insurance and its benefits:
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Four in 10 adult Americans have no life insurance at all.
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Insured Americans, on average, have only about three-and-a-half times their annual income in life insurance coverage. Many insurance experts believe that people's true need for coverage is 10 times their gross annual income, and sometimes more.
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Only 35 percent of adult Americans have individual life insurance. Many rely on insurance provided by their employers, leaving many employees without coverage if they were to lose their job or change jobs.
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Each year, a significant number of Americans (600,000) die prematurely. In fact, the chances a 25-year-old male will die before reaching the retirement age of 65 is nearly 1 in 5; for a female, the odds are 1 in 9.
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When death occurs, lack of life insurance coverage results in 75 percent of surviving family members having to take measures to meet financial obligations, such as work additional jobs or longer hours, borrow money, withdraw money from savings and investment accounts, and, in too many cases, move to smaller, less expensive housing.
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Many Americans recognize the importance of life insurance. It provides both peace of mind and security to families that are confronted with the death of a loved one. The life insurance industry provides protection to 75 million American families.
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Even so, 95 million adults have no life insurance, while insured Americans have, on average, far less than most experts recommend.
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The approximately $865 billion life insurers have paid out since the year 2000 have helped families pay their rent or mortgage, auto expenses, medical expenses, food expenses and school tuition bills, among many other things.
Protection
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California residents have $3.6 trillion in total life insurance coverage.
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State residents own 10 million individual life insurance policies, with coverage averaging $238,000 per policyholder.
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Group life insurance coverage amounts to $1.2 trillion.
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Individual life insurance coverage purchased in 2015 in California totaled $208 billion.
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$39 billion was paid to California residents in the form of death benefits, matured endowments, policy dividends, surrender values, and other payments in 2015.
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Annuity benefits paid in the state in 2015 totaled $8 billion.
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About $558 billion of this investment is in stocks and bonds that help finance business development, job creation, and services in the state.
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Life insurers provide $89 billion in mortgage loans on farm, residential, and commercial properties, and own $11 billion in real estate in California Life insurance companies invest approximately $725 billion in California's economy