Covered: Life Insurance at Every Stage of Life

Every stage of life brings different victories and challenges. Thriving financially includes managing risks associated with opportunities and obstacles that life presents. One way to manage those risks is through life insurance. Just as with other life stage differences, the role life insurance plays in your financial plan changes as your time of life changes. And that is why when life changes, so should your insurance coverage. Re-evaluating your life insurance coverage every few years is an important part of every financial plan. Let’s dig into the different types of life insurance policies and how to determine which type of coverage is right for you at every stage of life.

When you’re in your 20s, you are just starting out in life. You may not have a lot of financial responsibilities, but you probably have some debts, like student loans. You may also be just starting to think about starting to build up your savings. If something happens to you, life insurance can help your loved ones pay off any debts and expenses you leave behind. Most financial experts recommend that young adults have a life insurance policy that is worth at least five to 10 times their annual salary.

In your 30s and 40s, you are likely to have more financial complexities than you did in your 20s. You may own a home, have a family, and be earning more in your career. If something happens to you, life insurance can help your loved ones keep up with mortgage payments, pay for childcare and education, and cover other everyday living expenses. Most financial experts recommend that adults in their 30s and 40s have a life insurance policy that is worth 10 to 20 times their annual salary. However, there are several factors to consider when finding the multiple that is right for you. Some questions you can ask: Are you replacing a sole breadwinner’s earnings or is the insurance meant to replace going a stay-at-home parent’s contribution? What is the lifestyle expectation should a loss occur? Will it stay the same or will things change? Are your children younger or older? Will other expenses change?

When you reach your 50s, these are typically your highest earning years. You may also have paid off your mortgage and other debts but may be either preparing for or putting your children through college. At this point in your life, you may not need as much coverage as you did when you were younger, but you may still have expenses that need to be covered should you pass away. A good rule of thumb is to have a life insurance policy that is worth seven to 10 times your annual salary. The same considerations as above still apply, but because your liabilities are typically less your insurance needs may be less. Going through all your expected earnings and lifestyle non-negotiables should be included in your insurance needs analysis.

By the time you reach your 60s and older, you will probably have paid off most of your debts, and your children will be grown and flown. You may also be nearing or in retirement and have a good amount saved. If you have a spouse, life insurance can help them maintain their standard of living if you die. If you don’t have any dependents, you may not need life insurance at this stage in life. However, life insurance can be used as a vehicle to pass on wealth to your children or other loved ones.

Now that you know when and how much life insurance you may need, let’s explore the two main types of life insurance: term life insurance and whole life insurance.

Term life insurance is a policy that covers you for a specific period, usually 10, 20, or 30 years. This type of policy is often the most affordable option for young adults. Whole life insurance is a policy that covers you for your entire life. This type of policy is more expensive than term life insurance, but it does build cash value over time that you can borrow against or cash out later in life.

The best way to determine which type of life insurance is right for you is to speak with a financial advisor. They can help you assess your needs and find a policy that fits your needs, goals, and budget. This brings us to cost. Generally speaking, term life insurance is more affordable than whole life insurance, and the overall cost of life insurance is determined by how “risky” the insurance brokerage rates a client. Higher cost = higher risk.

To evaluate your “risk factor”, insurance companies consider several factors, including age, gender, overall health, and lifestyle. Statistically, the younger a person is, the less likely they are to die. Additionally, women with the same profile as men typically pay lower premiums because women tend to live longer than men. Insurance companies evaluate an applicant’s overall health and well-being by examining several health factors including medical history, known chronic illnesses/diseases, cholesterol levels, height and weight (BMI), etc.

While this list is difficult to control, other lifestyle choices can also impact monthly premiums. Things like whether you live a healthy lifestyle, if you smoke, drink, or partake in recreational drugs. A person’s occupation can also influence your life insurance cost. If you’re in a dangerous occupation or engage in risky hobbies the more likely your premiums will go up should expect to pay higher monthly premiums than a similarly aged person who maintains a safe, balanced lifestyle.

At Treehouse Wealth, we help our clients navigate making decisions that impact their overall financial well-being, including exploring life insurance coverage. Ask us if you’re unsure if your current insurance coverage is managing your risk effectively. We’d be happy to review your insurance plan and make unbiased recommendations about your level of coverage.