A couple of weeks ago, a 40-something friend of mine gave me the dreaded news: She has an aggressive form of breast cancer, and her prognosis is grim. She worries about who will take care of her 6-month-old son and 4-year-old daughter and how her husband will juggle it all if she’s not there to care for them.
Mortality isn’t something a presumably healthy 40-year-old woman typically contemplates—but she should. Unfortunately, many people do not want to face the thought of death and subsequently don’t get the life insurance coverage they may need.
Many people think there is some magic number for when you should buy life insurance. But it’s not your age; instead, it’s typically your personal and financial circumstances that determine the decision.
What are the circumstances that should prompt you to consider a life insurance policy? Here are five questions to consider:
1. Are you a wage earner in your household?
According to a 2014 article published by LIMRA, when asked how long it would take to feel the financial impact from the loss of a primary wage earner, more than half of consumers replied that they would feel effects within a year, while 47 percent reported it would be only six months.
Moreover, even if you’re not the primary wage earner, most households make spending plans and commitments based on all incomes combined. In addition, the lesser income may provide certain critical non-income benefits (such as a better health insurance plan) so that its loss could still be very difficult for the survivors to manage.
2. Do you have a young family?
If people depend on your income, life insurance may help supplement that loss. It’s something Generation Xers (approximately aged 33 to 50) may want to consider seriously, as they might have something very important at stake: young families.
Some final expenses—funeral and burial costs, probate and other estate administration costs, and final medical expenses not covered by health insurance—may be covered by life insurance.
3. Do you have parents, siblings, or adult children who need your help?
Of course it’s not only young dependents that can be affected by a death. Adults such as parents, siblings, or adult children who require enough care to qualify as dependents can also be affected financially by the loss of a wage earner.
4. Do you want to leave a legacy?
There are other reasons to consider life insurance beyond immediate family support. For one thing, it may be a good way to create an inheritance. You could also choose to make your favorite charity the beneficiary of your life insurance, which would allow you to leave a larger contribution than if you donated the cash equivalent of the policy’s premiums.
5. Are you looking for a way to save while protecting your family?
Some life insurance policies offer an important additional feature as a source of savings, which could make your policy more valuable while you’re still alive. For example, buying a cash-value policy (a feature that’s specific to permanent or whole life insurance) means that in the early years of the policy, a portion of each payment you make to the policy goes toward insuring your life while the other portion goes to building up a cash value. Because the premium you pay on this policy doesn’t grow as you age, the cash value is what keeps the premium fixed at its initial amount. Over time, as you pay your premiums and the policy earns interest, the cash value accumulates and becomes available for you to withdraw or borrow against, creating a kind of forced savings plan.
As with any financial decision, before deciding on whether you should borrow or withdraw from a life insurance policy, be sure to consult with an insurance or financial planning professional.
Plan ahead
Most of us don’t want to talk about our own mortality. But writing a will, making funeral arrangements, and choosing an appropriate life insurance policy are all things you may want to consider planning in order to make life a little easier for those you leave behind.
Loretta L. Worters is vice president of the Insurance Information Institute, whose mission is to improve public understanding of insurance – what it does and how it works. Ms. Worters is an author and woman’s advocate who appears regularly on TV, radio and in publications. Follow her on twitter at @LWorters.