Buying life insurance is an important part of your overall financial planning to help ensure your loved ones are financially covered to continue their lives without you. Life insurance coverage is available across different age ranges, so it’s important to find a policy that suits your needs. Here are some things to consider at various stages in your life.
No matter your age, the amount of life insurance you buy generally depends on the amount of money needed to pay off your debts and to help support your dependents in your absence. An insurance agent can calculate your life insurance needs, and it’s a good idea to ask questions such as how he or she arrives at the figure, what the number is based upon, and what specific assets and obligations were used to make the calculation. It is important 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 lasts for a set number of years (the term) as long as the premium is paid. Once the term expires you are no longer covered under the policy. To continue the coverage, you generally have two options: to shop for a new policy or convert your policy into permanent life insurance. Term life insurance includes a death benefit in the form of a lump sum of cash that's paid out to a beneficiary by the life insurance company when you die. This lump sum can be used for a variety of things, from burial expenses to mortgage and debt payments, to living expenses for your family, or whatever the beneficiary chooses. The death benefit is typically tax-free. Term life insurance generally offers you:
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 lifetime of the insured, 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 grows generally tax-deferred, which means you don’t pay taxes on any earnings as long as the policy remains active1. Policyholders can access cash value for a variety of reasons, such as building a nest egg for retirement, boosting the death benefit, or to help supplement retirement income through a policy loan.2
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 20's, 30's, 40's, 50's, 60's, and beyond?
The younger you are, the cheaper life insurance often is. In your 20's you are usually healthier with fewer health concerns, so the risk for insurance companies to cover you is minimal. It’s generally a smart idea to buy life insurance early on, even if it’s a small policy.
Term life insurance can be a great choice for most life insurance shoppers in their 20's because it's simple and affordable. If you may be on a tight budget, term life insurance may be a good match for you. If you are starting with a small policy, you can revisit your coverage down the road 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 actually many reasons why a single person would seek a policy. Maybe you have some debt to pay or dependents that need your support. Whatever your situation, make sure you consider your options before writing off life insurance while single.
When you enter your 30's you may have more financial responsibilities. Many people are married at this age, have a child, and perhaps own a house, so life insurance can become an important part of protecting your family and assets.
If you purchased a policy in your 20's, now may be a good time for a policy review. Figuring out how much insurance you need is generally based on what your family requires. If you have children, it’s 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, as well as the cost of living for your family after you’ve gone. What are your monthly bills and fixed expenses? What do you provide for your family, such as necessities like food and medical costs, and also discretionary funding, and other quality of life needs?
Your needs generally change when you get older. For many of those needs, life insurance may offer solutions. For instance, you may no longer have children living with you, but they might still need your support. Additionally, life insurance may offer solutions for your retirement.
As you are getting older, the life insurance coverage will generally cost more, but it can still be very affordable. If you already have a policy through your work, now may be a good time to review and make any adjustments and consider adding additional insurance. Is your workplace life insurance enough? You should consider the need to do some research to determine what insurers offer options that best fit your family’s needs.
During these years, you may want to consider permanent life insurance, which offers potential cash value growth opportunities. This benefit can offer you greater flexibility when it comes to saving for retirement and estate planning.
You may find a term life insurance policy might not be as cost-effective for you if you don’t have financial dependents or you’ve built enough savings to cover debts or final expenses.
It’s not too late to buy life insurance when you reach your 60's, and this may be a good time to reassess your financial situation before you purchase a policy. A term life insurance policy could be a good, inexpensive option. If you’re in good health in your 60's and even 70's you may be able to get a 10 or 20-year term life policy. Once you get closer to 80, it can be harder to get term life coverage.
The primary purpose of life insurance is a death benefit that can be used to protect your beneficiaries if you unexpectedly pass, but there are other benefits you may not know. 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 Taking income from both your retirement accounts and your life insurance policy could help keep you in a lower tax bracket.2
Deciding to buy life insurance at any age can be challenging. If you want to know more about how various life insurance options can best fit your needs, consider making an appointment to discuss the pros, cons, and possibilities with a financial professional. To help you find a financial professional near you, submit your information on our find an agent page.
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 with respect to 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 cash value of the contract exceeds 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 prior to age 59½, with certain exceptions. Policy loans and withdrawals will reduce cash value and death benefit. Policy loans are subject to interest charges. Consult with and rely on your tax advisor or attorney on your specific situation.
Life insurance policies have terms under which the policy may be continued in force or discontinued. Permanent life insurance requires monthly deductions to pay the policy’s charges and expenses, some of which will increase as the insured gets older. These deductions may reduce the cash value of the policy. 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 800-272-1642.
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.