Should You Get Life Insurance in 2024?
Life insurance is a financial consideration that often gets deferred or completely ignored, but it often comes around eventually if you have loved ones who depend on you. While it’s not a one-size-fits-all decision, many people benefit from at least term life insurance to ensure their family is protected if the unexpected happens. In 2024, with changing economic conditions and personal responsibilities, life insurance can provide peace of mind for many households.
Why Consider Life Insurance?
One of the most common triggers for getting life insurance is a significant life event, such as purchasing a home with a partner. If you’ve recently bought a house, term life insurance can be an excellent way to cover the mortgage in case something happens to you. This ensures that your partner or family won’t be left with the financial burden of paying off the loan.
For example, I currently pay around $1,700 per year for a $3.5 million term life insurance policy. The annual cost is reasonable (~0.048% of the coverage) and varies depending on factors like your age, health, and the length of the term. Generally, the earlier you purchase life insurance, the cheaper the premiums will be due to your health and age just being a major factor in policy premiums. As you become more financially secure, you can decide to opt out of term life insurance so you don't need to commit to the full term once the coverage is not needed anymore.
What Is Term Life Insurance?
Term life insurance is the most straightforward and affordable option for many people. It provides coverage for a specific period—usually 10, 20, or 30 years. If you pass away during the term, your beneficiaries receive the death benefit, which can be used to cover living expenses, pay off a mortgage, or provide financial stability.
Because term insurance is temporary, the premiums are generally lower than other types of life insurance. It’s ideal if your main concern is protecting your family during your peak earning years when you have significant expenses like a mortgage, children’s education, or debts. Once you feel financially stable, you can decide to let the policy expire, knowing your family is well-positioned.
How Much Coverage Should I Get?
When deciding how much life insurance coverage you need, a good starting point is to make sure it covers your major financial obligations. Here's a simplified approach to calculating the right amount:
1. Mortgage and Major Debts
Start by adding up your mortgage balance and any other significant debts, such as auto loans, personal loans, or student loans. You want to ensure that these are fully covered so that your loved ones don’t have to worry about making payments on them in your absence.
2. Income Replacement
Next, consider how much income your family would need to replace. Think about how many years of support your family would require to maintain their current lifestyle. A common approach is to calculate several years' worth of income so your family can adjust without immediate financial pressure.
3. Child Expenses
If you have children, factor in the cost of raising them, including potential education expenses like college tuition. This ensures your children’s needs are met, even after you’re gone.
By focusing on these three areas—mortgage and debt, income replacement, and child expenses—you can get a clearer sense of how much coverage makes sense for your situation.
What About Whole Life Insurance?
Whole life insurance is a more complex product that combines life insurance with a savings component. While it’s generally not recommended for those unfamiliar with life insurance benefits, it can be useful for people with specific financial goals. Whole life insurance provides a death benefit that lasts for your entire life, not just a set term.
One key advantage of whole life insurance is that the gains within the policy are tax-deferred, making it a decent tax-advantaged vehicle. However, the premiums are much higher than term insurance, and it’s a more significant long-term financial commitment. Whole life insurance is often used by individuals with specific financial planning needs, such as estate planning, where leaving behind a guaranteed sum can be advantageous.
Which One Is Right for You?
For most people, term life insurance is the recommended option because it offers substantial coverage at an affordable cost. It’s designed to cover the years when your financial obligations are highest, such as during a mortgage or while raising children. The flexibility to stop coverage when you no longer need it is another reason term life insurance is the go-to for many.
Whole life insurance is more suitable for those with advanced financial planning needs or those looking for an additional investment tool. If you’re primarily seeking insurance coverage without the complexity, term life is the way to go.
Closing Thoughts
In 2024, life insurance remains a smart consideration if you have loved ones you don’t want to burden financially in your absence. For many, term life insurance is the most practical option, especially if you have a mortgage or other significant financial obligations. With affordable premiums and straightforward coverage, it’s a crucial part of any financial safety net. Whole life insurance can be beneficial for those with more specific long-term financial goals, but for most people, term life insurance offers the protection they need at a reasonable cost.
If you’re wondering whether to get life insurance, the answer is probably yes, especially if there are significant people in your life who rely on you.