When you’re in your working years, purchasing the right amount of life insurance might take a backseat to other financial goals like saving for retirement.
But it shouldn’t.
You see, life insurance plays a significant role in protecting you and your family during your primary income-earning years. Ultimately, striking the right balance between investing for your future so you can retire when and how you want to, and purchasing the right amount of life insurance to protect your interests today is ideal.
Should you buy life insurance now?
While people need to save money and invest wisely, it’s also important to have the right kind of life insurance.
Pam Jenkins, assistant vice president for life product development at Colonial Life, explains the difference between term life insurance and permanent life insurance this way:
- Permanent (or cash value) life insurance is an important foundation to establish protection over your lifetime. It pays “when you die.”
- Term insurance is the least expensive, so you can afford to purchase higher amounts of coverage. You can layer term life insurance on top of permanent life insurance to have protection during those high-need years when the loss of your income would be the most devastating to your family. It pays “if you die” during the set term period.
“You’re never younger or healthier than you are today,” Jenkins said. “The cost and ability to qualify for life insurance are based on these two things. So purchasing as much coverage as you can while young will benefit you over your lifetime.”
Striking the right balance
If you’re finding it a challenge to sock away money for your golden years, it may be hard to see the value in investing in life insurance now.
You can actually lessen your financial responsibilities later by making this savvy move now. Since premiums are typically based on your age when you purchase and coverage does not decrease with age, there are no surprises. Coverage may be available through your workplace with a convenient payroll deduction that ensures that your premiums are always paid on time without you ever having to mail a check.
Life insurance is the foundation of any retirement plan, regardless of your level of income, Jenkins said.
How much life insurance is enough?
Calculating how much life insurance you need depends on a number of variables. Jenkins said it will vary depending on your goals for the insurance payout, Jenkins said. Most experts recommend eight to 10 times your annual salary, to provide basic protection for your family. This amount may be difficult to achieve; the reality is that as much as you can afford is better than none at all.
But there are other considerations inform your decision. Most people need more coverage during the working years or when they have more debt. As the mortgage is paid and children are financially independent, the need for life insurance decreases. But it’s always good to have a base of permanent life insurance in the absence of a large amount of savings.
Is job-sourced life insurance adequate?
If you have life insurance through your workplace, such as group term life, you may be hesitant to explore additional coverage, thinking you have enough and can shift your focus entirely to saving for retirement.
However, you may not have adequate coverage or you may need permanent insurance in addition to term insurance.
An additional factor to note is that group term insurance may not be portable, which creates a need to purchase additional term and/or permanent insurance on top of to what your employer offers so that you can retain it should you change jobs or want to have it after you retire.
Waiting to buy life insurance at retirement is a risky decision, Jenkins reminds. Premiums are higher at older ages, and health issues may prevent you from qualifying.
Retirement planning is often a complicated process. Work with a retirement planner and life insurance professional to assess your situation and invest in the right products to meet your needs today and down the road.