Life insurance might not be the most exciting thing to think about, but it can be one of the most important financial decisions you make. Whether you’re just starting a family, buying a home, or planning for the future, life insurance offers protection and peace of mind when it’s needed most.
If you’ve ever wondered whether life insurance is right for you, or just how it works, this guide is for you.
What is life insurance?
At its core, life insurance is a contract between you and an insurance company. In exchange for regular payments (premiums), the insurance company agrees to pay a set amount of money – called a death benefit – to your chosen beneficiaries when you pass away.
That payout can be used for a number of things:
- Covering funeral costs and final expenses
- Paying off outstanding debts or a mortgage
- Replacing lost income for your family
- Helping fund your children’s education
- Giving your loved ones financial breathing room during a difficult time
Types of life insurance
There are two main categories of life insurance: term life and permanent life insurance.
Term life insurance
This option typically covers you for a specific period – often 10, 20, or 30 years. It’s typically the more affordable option and pays your beneficiaries in the event that you pass away during the term. If the term ends while you’re alive, the policy will go unused and expire (although some offer renewal or conversion options).
Term life is best for people looking for straightforward, affordable coverage during key life stages, like raising a family or paying off a mortgage.
Permanent life insurance
This option covers you for your entire life, as long as your premiums are paid. It includes a cash value component – money that builds up over time and can be borrowed against or withdrawn. It comes in several subtypes, including whole life, universal life, and variable life insurance.
Permanent life insurance is best for those that are looking for long-term coverage with additional savings or estate-planning benefits factored in.
How much life insurance do you need?
There’s no one-size-fits-all answer to how much life insurance you will need to ensure you and your family are aptly protected. A good starting point is to think about what your loved ones would need if you were no longer around. Consider:
- Current and future debts (like a mortgage, loans, or tuition)
- Your household’s income needs
- Childcare or education expenses
- Final expenses and medical bills
- Any legacy you’d like to leave behind
Some experts suggest aiming for 10-15 times your annual income, but the right number for you depends on a broader sit down with an insurance agent to review your specific situation.
When should you consider getting life insurance?
The earlier, the better. Life insurance tends to be more affordable when you’re young and healthy. You may want to consider applying if:
- You’re getting married or starting a family
- You’re buying a home or taking on significant debt
- You want to leave something behind for your loved ones
- You’re a business owner protecting your company and key employees
Even if you’re getting life insurance through your employer, it may not be enough to cover your bases. Group policies often offer limited companies, and end when you leave the company. Be sure to read the fine print to understand the limitations of your policy.
How do you get life insurance?
Getting started can be as simple as contacting your local independent insurance agent. They can help you determine how much coverage you need, compare quotes from a variety of providers, understand the finer details of your policy, and ultimately choose the right policy for your needs and goals. For this review, be prepared to answer questions about your health, lifestyle, and finances. Some policies require a medical exam, while others offer simplified or no-exam options.
A safety net worth having
Life insurance isn’t just for people with dependents or big estates. It’s a practical tool to help ensure the people you care about are taken care of if the unexpected happens. And when it’s built into a bigger financial plan, it can offer added flexibility and security for the road ahead.
If you’re not sure where to start, talk with someone who can walk you through your options. Life insurance doesn’t have to be complicated and getting it in place can bring lasting peace of mind for you and your loved ones.
Optimal protection for your family in your hometown
Finding an independent insurance agent in your community is as easy as making a phone call.
Set up a meeting with one of our helpful agents on the insurance team at Minnwest Insurance Agency. We’re located in hometowns throughout Minnesota and southeastern South Dakota. As independent agents, we can compare rates from numerous insurance companies, so you can get the best coverage at the best value.
Minnwest Insurance Agency, Inc is an affiliate of Minnwest Bank. Products offered through Minnwest Insurance Agency, Inc are: Not a deposit | Not FDIC insured | Not insured by any federal government agency | Not guaranteed by the bank or an affiliate of the bank | May go down in value (if applicable)
