Let's face it. No one wants to think about their own demise. But we should be ready to talk about providing for those we love if the unthinkable happens. Because life insurance is designed primarily to provide a financial safety net for your family during your most crucial income-earning years, people who are just entering the work world are at the perfect age and stage of life to get life insurance. Here are a few guidelines for choosing life insurance for the first time.
Step 1: Calculate your need. Use GuideStone’s life insurance analysis calculator to help you reach the right number. This tool will help you build a net worth analysis and predict your potential long-term income and expenses. Use these numbers to determine your life insurance coverage needs.
Step 2: Max out any employer-provided coverage. If your employer offers group life insurance coverage you may be eligible for applying for coverage without underwriting upon initial hire date. Some employers offer individual or optional coverage with underwriting and the ease of payroll deductions. This is the best place to start. Employer-sponsored life insurance is usually based on your salary, so it may not be enough to cover all your needs. Remember also that your employer-provided life insurance is term coverage, available while you are employed. Some policies have portability or conversion options that allow you to take the policy with you when you change jobs or retire.
Step 3: Choose a policy type. It’s also a good idea to have some life insurance that’s not tied to your job. When shopping for an individual private policy you’ll have two basic choices, term and cash value. Term insurance is for a specific period of time and almost always has lower premiums. Cash value insurance has an investment component built in and comes with higher premiums and additional fees.
Step 4: Plan for your spouse. Both spouses should have life insurance, even if one spouse is not in the workforce. This is especially important if the non-employed spouse is serving as a caregiver to children or an elderly family member. The price of providing someone to fulfill those duties can be costly for the surviving spouse. You may be able to purchase life coverage for your spouse as part of your employer’s benefit plan.
Step 5: Name your beneficiaries. Most people choose their spouse as their life insurance beneficiary. Talk with a financial or tax advisor before naming a minor as a beneficiary, as a testamentary trust will be required. Naming your estate or trust as the beneficiary of your life insurance policy could create unintended tax consequences.
Once you’ve established your life insurance, it’s important to revisit it every few years, especially if there are changes in your family or your employment status. It may also be cost-effective to provide an extra layer of financial protection by adding accident and disability riders to your life policy.
GuideStone offers term life, accident and disability policies designed exclusively for those in ministry. Learn more about them here.