Life insurance can be essential to your overall financial plan and help protect your loved ones financially. Purchasing coverage can be a valuable step at every age, so even if you do not currently have life insurance, it can be an excellent time to put protection in place. Here are some things to consider throughout each stage of life.
No matter your age, the life insurance you buy generally depends on the money needed to cover final expenses, pay off your debts, and help support your dependents in your absence. Meeting with a financial professional can help you calculate your life insurance needs and answer questions about what this coverage amount is based upon and the specific assets and obligations used to calculate. It is crucial that you look at your overall financial status and future needs for your family when you consider buying insurance.
There are generally two basic types of life insurance to consider: term and permanent policies.
Term life insurance is a policy that has a level premium for a set number of years (the term) and will remain active as long as the premium is paid. Once the term expires, your premium will increase annually. To continue the coverage, you generally have the option to pay the higher premium, shop for a new policy or convert your policy into permanent life insurance. As long as your policy is active, your beneficiary will receive the death benefit as a lump sum following your death. This lump sum can be used for various needs, from burial expenses to mortgage and debt payments and general living expenses for your family. The death benefit is typically tax-free. Term life insurance generally offers you the following:
Permanent life insurance is the general term for life insurance policies that do not expire. Unlike term life insurance, which provides death benefit protection for a specific period of years, permanent life insurance can last the insured's lifetime as long as premiums are paid, subject to the terms of the policy. These policies may also offer the potential to build cash value. The cash value for permanent life insurance policies typically grows tax-deferred, which means you don’t pay taxes on any earnings as long as the policy remains active.1 Policyholders may access cash value 2 for a variety of reasons, including:
A permanent life insurance policy typically costs more than a term life policy, but permanent life coverage offers you:
With these basic forms of life insurance, how can those policies apply to you in your 20s, 30s, 40s, 50s, 60s, and beyond?
Often, the younger and healthier you are, the lower the cost of life insurance. In your 20s, you are usually healthier with fewer health concerns, so the risk for insurance companies to cover you is minimal. Buying life insurance early is generally a good idea, even if it’s a small policy.
Term life insurance can be an excellent choice for most life insurance shoppers in their 20s because it's often simple and affordable. If you are on a tight budget, term life insurance may be a good match for you. Even if you start with a small policy, you can revisit your coverage when your life changes, such as having children, getting married, or being promoted.
You may think that being single means you don’t need life insurance, but there are many reasons why you should consider purchasing a policy. With the average funeral costing over $7,800, final expenses can be expensive for the people left behind. Life insurance can help ease the financial burden on your loved ones. A death benefit can help your beneficiaries pay off your medical expenses or remaining debt. In addition, if you choose a permanent life insurance policy, you may be able to access its cash value during your life to help with your financial needs.
When you enter your 30s, you may have more financial responsibilities. Life insurance can become important to protecting your family and your assets. If you purchased a policy in your 20s, now may be a good time for a policy review. Figuring out how much insurance you need is generally based on your family's financial obligations. If you have children, it’s also important to consider their future should something happen to you. When determining how much life insurance is needed, consider such factors as the cost of caring for your child and the cost of living for your family after you’re gone. What are your monthly bills and fixed expenses? Did your income help with necessities like food and medical costs? Are there other quality-of-life needs?
Your needs generally change when you get older. For instance, you may no longer have children living with you, but they might still need your financial support. You may have accumulated more financial assets or are thinking about creating a legacy to leave to your loved ones. Life insurance coverage will generally cost more as you age, but it can still be very affordable. If you already have a policy through your work, now may be a good time to review it, make any adjustments, and consider adding additional insurance. Your workplace life insurance may not be enough to cover your family’s needs, and if you change jobs, you typically cannot take the policy with you. During these years, you may want to consider permanent life insurance, which offers potential cash value growth opportunities. This benefit can provide you with greater flexibility when it comes to saving for retirement and estate planning.
It’s not too late to buy life insurance when you reach your 60s, and this may be an excellent time to reassess your financial situation before you purchase a policy. A term life insurance policy could be a good, inexpensive option. While the primary purpose of life insurance is death benefit protection that can be used to protect your beneficiaries, there can also be living benefits. For instance, permanent life insurance can help with your retirement planning. Maybe you’re closing the gap to retirement, but your account is not quite where you want it to be. Cash value from your permanent life insurance policy can help supplement your retirement income, and you might be able to reduce the amount you withdraw from your retirement accounts. During retirement, withdrawals from these accounts are generally taxable as regular income.1 Plus, taking income from your retirement accounts and life insurance policy could help keep you in a lower tax bracket.2
Life insurance can fit into any life stage, so no matter your age, having a conversation with a financial professional about your personal financial needs and how you can protect your family can be beneficial. Knowing your loved ones have a financial safety net can help you enjoy every milestone and gain greater peace of mind about the road ahead.
1. Neither Midland National nor its agents give legal or tax advice. Please consult with and rely on a qualified legal or tax advisor before entering into or paying additional premiums for such arrangements.
2. Policy loans from life insurance policies generally are not subject to income tax, provided the contract is not a Modified Endowment Contract (MEC), as defined by Section 7702A of the Internal Revenue Code. A policy loan or withdrawal from a life insurance policy that is a MEC is taxable upon receipt to the extent that the contract's cash value exceeds the premium paid. Distributions from MECs are subject to federal income tax to the extent of the gain in the policy, and taxable distributions are subject to a 10% additional tax before age 59½, with certain exceptions. Policy loans and withdrawals will reduce cash value and death benefits. Policy loans are subject to interest charges. Consult with and rely on your tax advisor or attorney for your specific situation.
Life insurance policies have terms under which the policy may be continued in effect or discontinued. Permanent life insurance requires monthly deductions to pay the policy’s charges and expenses, some of which will increase as the insured ages. These deductions may reduce the cash value of the policy. The current cost of insurance rates and current interest rates are not guaranteed. Therefore, the planned periodic premium may not be sufficient to carry the contract to maturity. For costs and complete details, refer to the policy or call or write Midland National Life Insurance Company, Administrative Office, One Sammons Plaza, Sioux Falls, SD 57193. Telephone 800-923-3223.
The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.