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Now I Get It: Life Insurance

·Nicole Goodkind

No one wants to think about life insurance, but if you have people who depend on you financially–it’s an important topic to consider.

If something were to happen to you or your spouse, life insurance would pay for funeral costs, bills and pay off any outstanding private debt. It could also be enough to continue a family business, protect retirement plans and pay for education. Why saddle loved ones with emotional and financial burdens?

If you have children or a spouse that depends on you financially, it’s probably a good idea to have a plan. Small business owners might also want to consider purchasing a policy to ensure that their companies can continue after they pass away (if that’s their wish).

If you’re single with no children then you probably don’t need to worry about life insurance yet, unless you provide support for a parent or are in a significant amount of debt. When you pass away, anyone who has cosigned a loan with you or is a joint account holder is held responsible for that debt.

Keep in mind that policies are adjustable; you can always take out more life insurance as your family grows or decrease your package once your children are out of the house.

85% of Americans say most people need life insurance, but only 62% have coverage, according to the Life Insurance and Market Research Association. So where’s the disconnect? Eighty-six percent of Americans think that life insurance costs two times more than it actually does. In reality, the younger you are when you buy-in, the cheaper it is.

On average, a 35-year-old non-smoker can expect to pay about $30 a month for the most popular policy. A 60-year old purchasing a new policy can expect to pay $208 a month. Health is also a factor—Smokers can expect to 200% more for their policies.

Life insurance is bundled into different options, so you can pick the one that’s best for you. The most popular option is term life insurance, for which you pay a fixed rate for a term of 10 to 30 years. If you pass away during that time, your family will receive a payout, typically around $250,000 or $500,000.

Cash value and permanent life insurance provide lifetime protection, and they also grow cash value that builds tax-free. In certain cases you can also borrow against these programs tax-free. But beware—the cost is significantly higher because they offer a guaranteed payout.

We all have obligations that we worry about, and owning a life insurance policy takes a little bit of that burden off of our shoulders.