Life Insurance. Here's What You Probably Didn't Know - Digest Your Finances (2024)

Oh, Life Insurance. Just the words sound like a commercial is about to start. Navigating the world of life insurance is confusing, to say the least. I mean, what the heck does term life and what is whole life even mean? Fear not dear reader, we’re about to figure that out.

Statistically, according to Insure.com, about 41% of Americans don’t have life insurance. Considering how important it is to have your finances in place for your family and their future, having it is paramount.

Now I get it, thinking about your mortality is uncomfortable. But the thing is, most things that are important are hard to talk about.

So, let’s make sure you understand all your options, and why you shouldn’t hold off on getting it.

What is Whole Life Insurance

Let’s start off with the easier one to understand. Just like the name suggests, whole life covers you for the whole time you’re alive. The big caveat of whole life is that it costs quite a bit more than term life insurance. We’ll go over that that in a little bit.

So, here are the key points to remember about whole life:

• Covers you for your whole life
• Benefits are only paid if the policy was current upon death
• You typically have to undergo a medical examination to qualify
• You can skip having a medical examination, but pay more in premiums
• You can borrow a portion of the policy
• Your contributions are typically forfeited if you cancel

What is Term Life Insurance

Unlike whole life insurance, term life covers you for a specified period/term. In simpler terms, you can get term life for 5, 10, 15, or 30 years. If you die within the period/term, then the benefits are paid out.

Now, here are some key points to also remember about term life insurance:

• Easiest and cheapest option to buy
• Covers you for a specified term, typically 5, 10, 15, or 30 years
• Benefits are only paid if the policy was current upon death
• Term must be renewed if you want to continue coverage
• Can be converted to whole life, depending on your provider

Alright, so which one do I pick?

Great question! This depends on various things, as everyone’s situation is different. When choosing between term and whole life insurance, a knowledgeableinsuranceagent can definitely help you figure that out. You can also just do a self-evaluation and figure out which policy would work best for you.

Here are some factors to consider:

• How old you are
• How healthy you are
• Family (if you’re single, married, with kids, etc)
• How you plan on dealing with funeral expenses
• Your current debts
• Your current income, and how much of a policy you can afford
• When you plan on retiring
• Your future needs such as college tuition for your children
• Your estate plans, such as inheritance of your assets
• How you plan on paying for taxes due to inheritance

Okay, that was a laundry-list of things to consider, but they are all important in determining which kind of policy to consider.

Great, give me some examples

You’re asking all the right questions today! I’d be glad to give you a few examples 🙂

Let’s say you’re 30 years old, married, primary earner, and have two kids. In this scenario, it’s likely that you should consider having a term life insurance policy. This policy needs to completely cover your current debt obligations and any funeral expenses that your family would incur.

Alternatively, you could opt for whole life insurance. Since whole life insurance is for a much longer-term (depending on how long you live for), it might not only cover all your obligations but have enough to leave something for your kids’ college and inheritance.

Now, on the other side of the spectrum, if you’re 55 years old, all kids have grown up, then you could opt for shorter term life insurance. By doing so, you can dramatically lower your insurance costs, and you know in the event that something happens, your obligations can be paid for.

You could also consider whole life insurance at an older age. You might do this so that you know your policy would cover your spouse’s needs.

At this point, its really apparent that there are various factors to really consider when choosing which policy to get. I hope that was helpful 🙂

Can I have both term and whole life?

Yes! Most people don’t realize this, but you can actually carry both term and whole life insurance. Typically, those that already have a whole life insurance policy in place, can also add term life insurance.

This all depends on your financial situation and your financial goals. 10 years during your whole life insurance, you might realize that you are in need of additional protection for a certain period of time. In instances like that, having an additional term life insurance can be beneficial, and provide piece of mind.

The secret to Life Insurance

So after reading all this, you’re probably in one of two camps. Either, you’re now well informed and are ready to get a policy in place or you’re still not convinced you need life insurance. For those in the second camp, the reason is usually one of these:

• I’m young and healthy. I don’t need it
• I don’t have any kids yet, what’s the point
• I’m too busy to set this up now. I’ll do it one day
• It’s probably too expensive anyway

Here’s the secret to life insurance. It will never be as cheap as it is now for you! Let me explain.

One of the biggest driving factors that determine the cost of life insurance is your age. You’re never going to be as young as you are now, so make sure you set up a policy as soon as you can. Now you’re probably wondering where on earth do I even get started?

Get term life insurance

Here’s my recommendation. Get term life insurance. Not only is it much more affordable, but it also makes the most financial sense. When you factor in your long life expectancy, you’re better off putting aside and investing your premiums, than contributing to it.

Here are some of the benefits of term life over whole life:

1. Much cheaper premium (as low as $3 a month)
2. Much easier to qualify
3. Can get coverage of up to $1,000,000
4. Depending on your provider, you don’t even need any medical exams
5. Excellent for early in your life when you don’t have many assets to leave behind

I highly recommend checking out Ladder.com and getting a super easy instant quote.

It takes a couple minutes, and you lose nothing getting a quote. Check them out here:

Final thoughts

I really hope this shed some light on why health insurance is so important and what it all means. It’s not fun talking about our mortality, but its even more important to be prepared for it.

So hope you take action sooner than later, when you still can 🙂

Thanks for reading!

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