So, it’s September and the kids are back in school. You might have a bit of studying to do, too, if your workplace benefits enrollment is coming up soon.
One of the most important benefits your employer can offer is life insurance. Rather not think about it? We get it, but you literally can’t afford not to. The fact is life insurance is a crucial part of protecting your family and your future.
And life insurance is actually pretty simple. There are two main types: term and cash value. Depending on where you are in life — married or single, with or without kids at home, newbie or close to retirement — you might need one or the other, or both.
Term life
This kind of life insurance covers you for a set period of time (hint: that’s why it’s called “term”). It could be 10 or 20 years, or in some cases while you work for your current employer.
• Why you might need it: Term life might be a good fit if your primary goal is making sure your family doesn’t lose its home or your kids can still go to college if you should die unexpectedly young. Your employer might provide a basic level of term coverage, but it’s likely not enough. Many financial pros recommend seven to 10 times annual salary — and that’s just a rule of thumb. Your need could be much higher if young children or other long-term commitments are in the picture. Once those obligations end — the kids are grown, the house is paid off — you might not need as much coverage.
• Pros and cons: Term life is usually the most affordable option, but it’s temporary — and premiums can increase as you get older.
Cash value life
Just like term insurance, cash value life provides your family money to pay debts or expenses. The difference is permanent coverage doesn’t end at a set time and has a cash value that may grow over time. Whole life and universal life are two types of cash value insurance. Whole life is also called permanent life since it can continue as long as you keep paying the premiums.
• Why you might need it: Most people don’t have enough money saved up to pay for things their families might need after they die. Funerals cost the typical U.S. family around $8,500. There may also be out-of-pocket medical costs or other debts left behind. A whole life insurance policy can help pay for some of these costs, so your family doesn’t have to.
• Pros and cons: Some plans include options so the coverage is fully paid for at a certain age, such as 65 or 70, so you don’t have to keep paying for it in retirement when your income is lower. Whole life has stable premiums and death benefits, while universal life has more flexibility, but the cash value can be negatively affected by interest rates. Cash value life insurance tends to be more expensive than term life.
With either type of life insurance, sooner is better than later.
“The younger you buy life insurance, the better,” says Pam Jenkins, assistant vice president, Product & Market Development at Colonial Life. “Coverage may not be available or may be more expensive if you later have certain illnesses or health problems.”
