Life insurance is one of those topics that most millennials are not thinking about right now, and honestly, most do not need to think about it until their 30’s. If you are young, single, and have no debt, then life insurance is probably not something you need regardless of what the life insurance salesman tells you. But, if you are later on in life or are younger and about to get married or have kids, then life insurance is something you should learn about and implement.
At its’ core, life insurance is a tool for those that have someone that depends on them or their income. This could be children, a spouse, a parent, etc. It can also be used to help pay off debt, pay for future goals for your family (like college), or replace income if one were no longer around.
Losing a spouse can be one of the hardest things to go through emotionally, but its impact goes far beyond the emotional side. That loss of income (or role that person plays in the family) can devastate a family’s financial life without proper life insurance in place. Over half of widows lose more than 50% of their income after a loss. Additionally, over 25% of widows are forced to move somewhere less expensive when a spouse dies simply because they can no longer afford it. Nobody wants their spouse or family to have to go through that. This is why life insurance exists.
I view life insurance in the same way I view an emergency fund, like a guardrail. Both are there to help keep you from falling off a cliff when something crazy does happen, like a loss of a loved one. With the right amount of insurance in place, your financial life will not be ruined by a loss (it will still be hard to go through emotionally, but that should be the focus in a time like this not money). This is why proper financial planning exists — not only to help you save and plan for the fun times in life but also to prepare for the ‘what ifs’ we do not always foresee.
Life insurance is oftentimes neglected by couples simply because it is a painful conversation to have. I have found that people rarely take the time to sit down and think about the bad things that could happen in life let alone come up with a plan for what to do if those bad things did happen. However, just because it isn’t fun to talk about, doesn’t mean we should not talk about it.
The other reason I see people not get insurance is that they think it will be extremely expensive, but in most cases, term life insurance (which we talk about next) is very affordable and manageable for millennials.
There are many different types of life insurance: term life insurance, permanent life insurance, whole life insurance, etc. We are going to focus on term life insurance in this blog post as I think this is the better route for most millennials to take as you get the most insurance for the least cost.
With term life insurance, you first determine the amount of money you would want your family to have if you passed away and then you pick the number of years you want the insurance contract to last. So how do you come up with the right amount? To be honest, it depends on what you want the life insurance to cover. Typically, people want their life insurance at a minimum to cover a certain number of years of income plus whatever debt they have remaining. Others want it to cover all of those things above plus kids’ college expenses. Some even want it to cover their income for all of the years the kids would still live in their house so the spouse would not have to go back to work until the kids are out of the house. It really just depends on what people want for their family. Then, to determine the time frame, you simply need to figure out how long you need the insurance for. An example would be that your kids are 6 and 3 and you want to cover your income until they are out of college, so you would need the policy to cover 20 years.
I thought it would be helpful to lay out some scenarios and then decide whether they would need life insurance or not and why. Hopefully one of these applies to you and your situation.
A 25-year-old who just got married and owns a house
Yes, this person should get life insurance. With a spouse and a mortgage, it makes sense to have life insurance if they were to pass away.
A 33-year-old stay at home mom who has a house, 2 kids, and some student loan debt
Yes, this person should get life insurance. Many times people fail to remember the role a stay-at-home mom has. If something happened to her, the family would need to hire someone to take care of the kids which requires money.
23-year-old who just graduated from college, is single, and has no debt
This one is a little tougher. I would say no, this person does not need life insurance yet. Some insurance salesmen will tell you in this situation to get life insurance to guarantee your insurability (which means to make sure no matter what, even if you get sick, you get insurance later on in life) however, if you are young and healthy this risk is rather low. But, if this person did have student loans that were co-signed by a parent, then it would make sense to get life insurance so the parents are not stuck with the student loan burden if you passed away.
A 38-year-old who has a spouse that makes exactly what they make. They also rent a nice apartment in Downtown Chicago and have no debt.
This one is a little tougher, as it depends on the couple and what they want. Since they both make good money and have no debt, they could get away with having no insurance. But, if they require both incomes to afford their life, they might want to get life insurance to help cover the other in case a loss happens. I would say, get life insurance in this case, but again, it depends.
There are a million different places you can go to get life insurance, but I would recommend finding an independent salesperson who can shop from multiple carriers to find you the best deal based on your situation. The goal is to get the right amount of life insurance, for an affordable cost, from a reputable company that won’t go out of business before your policy ends. It’s that simple. If you are wondering where to find a good salesperson, reach out to me and I can connect you to someone that can help (I do not sell insurance so it can’t be me.) Remember, life insurance is not a fun topic or a way to spend your money, but it is an important part of your plan and keeping your loved ones safe and taken care of.
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Disclaimer: Nothing on this blog should be considered advice, or recommendations. If you have questions pertaining to your individual situation you should consult your financial advisor. For all of the disclaimers, please see my disclaimers page.