Life Insurance – Your Most Important Insurance Policy

Ask nearly anyone, what is your the most important insurance policy, and it’s a good bet that the answer will be “health insurance”. You may also get one or two suggesting auto insurance, or even disability insurance. You probably are unlikely to hear “life insurance” as an answer from anyone, even though it very well may be the most important.

Why life insurance is your most important insurance policy

Simply put, life insurance will be your final financial contribution to your loved ones. There is no greater type of insurance than the one which will sustain your dependents after your death. And there may be no better means of survival for your loved ones than a good life insurance policy.

It’s not that health insurance, auto insurance, disability insurance, or any other type of insurance is not important. Anyone who was ever had a medical crisis or a major auto accident knows this only too well.

Life Insurance - Your Most Important Insurance Policy
Life Insurance – Your Most Important Insurance Policy

But as far as your family is concerned, you will still be around with the hope for a better future even in the midst of a medical crisis. And you’ll probably go on to drive again after an auto disaster. But once you die, not only will your family have financial needs, but they won’t have you around anymore to help with them. Your life insurance policy will be your last, best gift to your family. It could be the very thing that keeps them out of poverty.

Different life insurance policies for different needs

There is sometimes the belief that life insurance policies fall into the “one size fits all” category, but nothing could be further from the truth. You can get a insurance policy customized to fit your individual needs.

As an example, you can get a basic whole life policy that will provide a fixed death benefit to provide for your family after your death. But if you also have a mortgage on your home, you can add a mortgage life insurance policy rider that will provide for the payoff of your mortgage in the event of your death. The mortgage life insurance would pay off the house, while your whole life policy would provide living expenses for your family.

You can also add a term life insurance provision to your regular policy so that you will have a higher level of coverage early in life when your children are young. This is an important advantage because affordability is always a factor for young families. Using term life, or a combination of whole life and term, will make it possible for a young family to afford a higher amount of coverage at a time when it is most needed.

Later, when your children are older, you can either reduce or eliminate the term coverage to fit your budget.

Just because you need it doesn’t mean life insurance has to be expensive

Unlike health insurance and auto insurance, there are often less expensive options with life insurance. For example, whole life insurance tends to be the best coverage because both the death benefit and the monthly premium remain the same throughout your life. However, whole life insurance also tends to be more expensive.

As an alternative, you can use term life insurance as a less expensive alternative. In fact, many times term life insurance costs only a fraction of the amount of whole life insurance for the same amount of coverage.

It’s also important that you shop around to get the best price. You can start by surfing the web using life insurance quote or a similar term that will bring up sites that can help you start the process. Whenever you’re shopping for life insurance, or any other type of insurance, it’s very important that you get competing quotes. This will enable you to compare policies to each other, as well as to get the best price.

Dollar for dollar, life insurance tends to be one of the best insurance values available. For as little as a few dollars per month, you may be able get several hundred thousand dollars worth of coverage to have available for your family in the event of your death.

And if that unfortunate event ever happens, you’ll have provided the single best financial asset you can in the form of a life insurance policy.

( Photo from Flickr by vagawi )

18 Responses to Life Insurance – Your Most Important Insurance Policy

  1. Having no dependents yet, I focus on high savings to cover any emergency and not be a burden for my family should I pass. I think there is a death coverage for funeral and repatriation on my credit card. If I have kids I am hoping my assets will generate enough passive income not to need insurance, but will probably go for it while they are young.

  2. Hi Pauline–What you’re describing is “self-insurance”. You can do that when you are single, childless or an empty-empty nester – if you have sufficient assets. But if you have children, especially young ones, you will need hundreds of thousands of dollars to leave to them so that they will be provided for. That’s way more money than most people have early in life and that’s where life insurance becomes important. At a minimum, you can get an inexpensive term policy for 20 years that will keep them protected in the event of your death, then reduce it or drop it when they come of age. This is also true if you have a non-working spouse.

  3. May be you are right, life insurance has to be the most important insurance. But did you ever consider that people don’t care about the future they only care about the current concerns. For example, my friend don’t have any life insurance but he is very well conscious about his car and got a auto insurance.

  4. Yes, that’s why I wrote the post. A lot of people don’t realize how important life insurance is not only because it has no immediate benefit to them, but also because it covers an event they don’t like to think about.

  5. I sleep very well at night knowing my family will be taken care of through our life insurance policies should something happen to myself or my wife. Peace of mind is a great thing to have.

  6. Hi Brian–I’m with you, I need to know my family will be provided for. Peace of mind is the biggest immediate benefit to life insurance but one I’ll glad pay (for a policy) to get.

  7. I was eager to read this post as I had posted my unorthodox thoughts in regards to life insurance several weeks back on my blog. As I expressed there, there is definitely a philosophical angle to life insurance. Yes, I certainly want to do right by my family, but at the same time, I certainly believe that my passing should not be the equivalent of hitting the lottery.

  8. That’s the “worth more dead than alive” conundrum. But I think most of us have a value to our loved ones that goes well beyond money.

  9. Great post Kevin. I know people who think life insurance is just a waste of money but my thought is it’s probably one of the greatest investments you can make with your money.

    I know a lot of people like to get term life and I totally agree for all the reason for having it but I prefer permanent policies over term for the shear fact that it will benefit my family when I pass a way even when I’m old and grey.

    I think a lot of people feel they only need it in their working years but I think the best way to make use of the policy is to actually keep it till you die, simply because it will go on to benefit future generations.

  10. I understand the importance of life insurance, but what about what you’re worth more than the value of your policy? Like if I had zero debt and $500k in the bank, wouldn’t I be alright without life insurance since my family would be well covered if anything should happen to my wife and I?

  11. Hi Johnny–Yes, you’d basically be self-insured. But considering that 64% of American households don’t have as much as $1,000 saved, life insurance will be incredibly imporant for the majority of people. And I supplose you could also say that you really don’t need much life insurance (beyond costs) if you have no dependents.

  12. I’m not trying to question your validity, but where did you get that 64% figure from? I would like to read further about that! Thanks for your response.

  13. Hi Johnny–Here’s the link http://money.cnn.com/2011/08/10/pf/emergency_fund/index.htm . It was all over the web. It is shocking, but I’ve learned something over the years. There’s the TV version of America (“streets are paved with gold”) and the REAL America, which isn’t nearly as pretty. A lot of people are struggling in this the richest nation on earth. I think credit has helped to hide this fact, allowing people to live above their means.

  14. If this is true, then it means that the majority of Amercans, technically speaking, fall into the category of the “working poor”. They may have an income, but they have no savings and live paycheck to paycheck. In some research I did for an article on another site, I came accross a study that indicated that the US has the highest percentage of “financially fragile” households in the developed world. They defined it as inability to come up with $2,000. The US figure was close to 50% of all households. In most other countries, the percentage was in the 20s.

  15. If you are a breadwinner in your family, life insurance is definitely the most important especially if the life of your family will have a financial disaster once you die. Every insurance policy is important and each has a lot to offer but think about what are the most important ones that you and your family is needed.

  16. I recently had a conversation about insurance with family and friends over the weekend. I found it astonishing that many rely on their “employer” life insurance. Most of these employer life insurance is 1 or 2x employee salary which may or may not cover the expenses of burial, medical, housing, etc. Many find paying for additional insurance as impossible. But you are right its not as expensive as one can imagine and the longer they wait the more costly it gets.

  17. Hi Jason – I think that’s the case with most people. Let’s face it, we tend to take the path that’s easiest. So we’re covered at work and content ourselves that all is well. But what happens when the job is lost? I couldn’t live that close to the edge with something so important!

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