Life insurance 101: Do you need it and how much does it cost?

No one likes to think about needing life insurance. But the only way to understand is to, well, understand it. Before you decide that you do or don’t need life insurance, you need to understand what it is, what it costs, and what it could mean for you and your family.

What is life insurance?

Life insurance is a service provided by insurance companies – in exchange for monthly payments, they provide a lump sum payment, known as a death benefit, to the beneficiaries of the person paying when that person passes away. For most people, the beneficiaries would be their family members.

How do I get it?

If you (or your spouse) receive insurance benefits through your workplace, it is likely that there is a life insurance plan available as well. Reach out to your Human Resources department to find out if life insurance is an option for you through your company, and what you need to do to learn more about it. There are also insurance companies that offer life insurance to anyone who qualifies – you do not have to go through the insurance provided by your work.

But wouldn’t using my current insurance provider make it easier?

There are pros and cons to acquiring life insurance through your work. On one hand, it is much more convenient to do a work-sponsored plan, and you will likely get a better rate. On the other hand, that means your life insurance is tied to your job, so if you lose your job for any reason, you would lose those benefits, and potentially have a gap in coverage where you would no longer have life insurance until you found your next job.

What does it cover?

Life insurance, much like your typical medical insurance, can be tailored (to a degree) to fit your needs. For instance, if you have children, you will want to ensure that the payment amount of the death benefit would be sufficient to cover their expenses until other resources are available.

Or if you are about to get married, look for policies that cover things like student loan debts, home expenses, and other daily needs. If you have a family member with special needs who requires medical equipment or therapy, you will want to consider those costs as well.

Can anyone get it?

There are eligibility considerations when it comes to life insurance. The majority of people will qualify for life insurance without an issue. But, just like other types of insurance, there is an underwriting process that takes place to determine your eligibility.

The underwriter will look at things like your health, medical history, family history, lifestyle habits (i.e., smoking, any dangerous activities you undertake regularly, etc.), and you may also need a physical exam before the insurance company makes a final decision. You may learn that you have to pay more than you expected because you are a higher risk to insure, but there is little chance you will not be eligible at all.

Are there different kinds?

There are three different types of life insurance policies that you may have to choose between: term, universal, and whole. The main differences are the longevity of the policy, the flexibility of the policy, and the cost. For instance, term life insurance is designed to cover a specific period in your life, such as the next 20 or 30 years. But it also costs less than a whole life insurance policy, which is more expensive but covers your entire life instead of just the pre-determined time period. Work with your insurance provider to understand all of your options.

Do I really need it?

Again, this is not a pleasant subject for anyone to consider. But it is a necessary one. Only you and your family can determine together if life insurance is the right step; however, we would encourage you to give it some serious thought before making a decision.

It is a financial obligation, and if you have other ways of providing for your family in the unlikely event of your death, you may decide life insurance is not for you. Or if you are worried about how your family would function without your income, you might realize that having this extra insurance policy is worth the extra cost in the long run. It all depends on what you need and what you’ve already planned for your future.

Who can help me understand this better?

When you Google “life insurance,” you will be greeted with a page full of ads, but very little information. Look for resources like this Fidelity website, which breaks down some of the basic questions, or this website that takes you through the underwriting process.

Your best bet is to call the insurance company directly and ask, or, if you are comfortable doing so, talk to a coworker who uses your insurance to see if they are satisfied with the service they receive. Human Resources will also be able to give you additional help and places for research.

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