To Buy or Not to Buy: When Should I Consider Life Insurance?

Green Settlements Staff

Table of Contents:

  1. What to Know About Different Policy Options
  2. When to Start Shopping Around

Life insurance promises peace of mind to policyholders and beneficiaries alike, and with the right plan in place, you can help provide for your loved ones even after you’re gone. The decision to purchase a life insurance policy is one that should not be taken lightly, as there are many insurance types, rates and contract provisions to consider and compare before you sign on the dotted line of any future policy.

Understanding the primary types of life insurance is a great place to start—once you’re comfortable with the basics, you’ll be better prepared to choose a policy when the time is right.

What to Know About Different Policy Options

Term life insurance provides coverage for a set amount of time and is typically purchased for a 5-, 10-, 15-, 20- or 30-year term. During this period, your beneficiaries will be completely covered and will receive the designated death benefit in full. The premium cost associated with term policies is often cheaper than other options, making this a popular choice for anyone on a tight budget. If you outlive the term policy, however, the cost of the policy will often increase significantly, which is something to consider when evaluating your options.

Permanent life policies, on the other hand, do not come with a term limit and therefore provide lifetime coverage. The most common forms of permanent life insurance are whole and universal life policies. These policy types differ in many ways, but they also share core similarities. For instance, both varieties have the potential to accumulate cash value over time that you may be able to borrow against tax-free.

Whole life insurance has a fixed premium, meaning the amount you pay each month or year will remain the same. Universal life policies are known for their flexibility. With a universal life policy, you have the freedom to adjust your death benefit and pay your premiums in any amount at any time after the first payment has been made.

When to Start Shopping Around

Technically speaking, the best time to purchase life insurance is right after you’re born. That’s because life insurance is age-banded, meaning that as time passes, a policy becomes more expensive. Even though most parents don’t elect to cover their newborns, it’s the best way to accrue value on a policy over time.

For young adults in good financial standing, purchasing a life insurance policy can be a worthwhile investment. If money is tight, pursuing life insurance may not be a viable option for many adults in their 20s or 30s—even though the math works out in the long run. Millennials, for example, are increasingly foregoing life insurance in favor of investing elsewhere or focusing on paying down debts.

The best option for this age group is usually term life insurance. These plans are less expensive than permanent policies, and some even come with the opportunity to convert them into a whole or universal policy down the line when you can afford the premium hike.

Reaching a major milestone or life event can have an impact on when you choose to buy coverage, too. For example, some people start thinking about life insurance when they get married or start planning a family—with more assets to account for and beneficiaries to factor in, life insurance can help you protect what matters most.

Although there is no “right” time to purchase life insurance, the sooner you research your options the better. A skilled financial advisor will be able to assess your personal situation and help you decide on a plan that’s right for you and your family.

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