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October 21, 2021 | 6 Minute Read
In their 2021 Insurance Barometer Study, LIMRA and Life Happens estimated that 52% of Americans would face financial hardship within one year if their household’s wage-earner unexpectedly died. When you consider housing, living expenses, health care and education, it’s easy to see how quickly a family’s expenses can add up.
What’s often surprising is learning that it might be cheaper than you think to protect your family with life insurance. Here are key things to consider as you seek the best life insurance coverage for your family.
It’s true that having a single life insurance policy with a large death benefit is a powerful financial resource. It’s also true that you can often get great value by putting together multiple policies as your needs—and earnings—grow.
For example, if you establish a $100,000 to $250,000 base policy, preferably with permanent life, in your 20s, you’re going to lock in a considerably better rate than if you acquire the same policy in your 30s or 40s. You might be a single renter in your 20s, but you are likely to have a spouse, family and/or a mortgage soon enough.
The base policy is going to give you a head start in meeting the total need you’ll have when your financial responsibilities grow. When they do, it’ll be more affordable to bump up the benefit amount in your base policy or stack a term policy or two on top of it than it will be to start from scratch.
Common life insurance needs in different stages of life
| Life stage | Life insurance needs |
| Single renter | Outstanding debts, financial support for parents or other family members; future responsibilities |
| Homeowner | The mortgage balance, or your share of it |
| Married individual | Spouse’s living expenses and retirement funds |
| Parent | Children’s living expenses, plus college or other higher education |
| Empty Nester | Your outstanding debts, including mortgage and business loans; your spouse’s living expenses and retirement funds |
| Retiree | Long-term care (as a policy rider on a permanent policy), estate planning; final expenses |
There are two obvious risks with this approach.
These are the main reasons to put as much coverage as you can reasonably afford in your base policy.
When you establish your base with permanent life, you get the added benefit of the policy’s cash value, which is something that could come in handy later in life. You can also often add a long-term care rider to a permanent life policy, which would address a need that is becoming more common for older people.
Determining a specific amount of money to budget on life insurance depends on your resources and needs. Your best bet is to consult with a qualified financial professional. That said, here are some general things to consider.
The cost of a term life policy can be comparable to the price of a few fancy coffees or cocktails each month, depending on your age, health and the benefit amount you choose. Similarly, the monthly premiums on a permanent life policy are often comparable to greens fees at a private golf course or ski resort lift tickets, particularly when you are young.
You don’t want to skip meals to pay for life insurance. But if you skip a few restaurant outings or find similar other ways to save, it won’t be that hard to fit life insurance into your budget, even if it’s just a small policy to get you started. As your salary grows, the premium will become more affordable.
Life insurance needs tend to evolve over the course of an individual’s life. You’ll probably have your greatest needs when your children are young, particularly if you are also in the early years of a mortgage during this time.
Even if your spouse also works, he or she will probably still need financial help to keep a roof over your family’s head and support your children’s higher education costs.
Whether you plan to have children or not, here are additional life insurance needs most people need to consider:
With life insurance, you can prevent these debts from passing on to your survivors.
By the time your children are finishing high school, you’ll have probably built up savings to contribute to their higher education costs. And your mortgage might be paid off, or close to it. If this is you, you might be comfortable reducing your coverage.
An easy way to scale back is to simply let any term policies you acquired run their course. You’ll still be better off if you have that base policy in place. Because at this point, you’ll still need to think about things such as your spouse’s living expenses and retirement, as well as your own outstanding debts and final expenses. Fun stuff, right?
There are key advantages of having life insurance in your older years, even after you retire. The most common come from permanent life policies. In addition to building cash value, permanent life has tax advantages that you can often incorporate into your estate planning. The latter is another topic that is best to discuss with a qualified financial pro.
Some other things to think about as you age include long-term care and final expenses. If you already have permanent life with a long-term care rider, you’ll have less to worry about.
Common challenges that life insurance can solve for older people
| Challenge | Policy type | How it helps |
| Long-term care | Permanent life | A permanent life policy with a long-term care rider can be more cost effective than a stand-alone long-term care policy. |
| Estate planning | Permanent life | The tax advantages of life insurance help make permanent life a useful tool in passing wealth to your survivors. |
| Final Expenses | Permanent life or a final expense policy | The costs of a funeral and burial or cremation can add up fast. |
Long-term care insurance, which is also available as separate, stand-alone coverage, pays for the care of those who lose the ability to perform at least two of what are known as the six activities of daily living. These include things like feeding or bathing yourself, toileting, and getting in or out of bed.
If you don’t already have life insurance in place when you reach an older age, you can consider a final expense policy. Insurers usually offer these as whole life policies with relatively small benefit amounts, usually in the $5,000 to $40,000 range.
You’ll usually see final expense insurance marketed as simplified-issue or guaranteed-issue policies. In addition to a very short application, they typically have few medical restrictions, sometimes none.
They cost more per amount of coverage than traditional life insurance. Even so, they are still a convenient and reasonably affordable way to defray the costs of your funeral and/or any small debts that would otherwise pass on to your survivors.