That is probably the #1 question that I get asked. Honestly, life insurance is great, but it isn’t for everyone. As with everything having to do with finance, the best answer is, it depends.
Life insurance comes in many varieties. Term insurance is much like renting an apartment. You have the life insurance for a certain amount of years, pay the annual premium and when the term is done, your life insurance is done. That is if something doesn’t happen to you during the term.
Permanent life insurance comes in many flavors too, and it’s more like buying the house. Terms you might hear are Universal Life, Indexed Universal Life, Whole Life and Variable Life. Many of these forms of life insurance accumulate cash in an account. So, you have the life insurance PLUS some cash. You might consider this as an alternate investment to the stock market, and it can even offer some nice retirement benefits while you are alive.
Life insurance almost always pays a tax-free amount to a beneficiary that you set up when you buy the insurance. You don’t need a will, rather life insurance will pass automatically to whomever you designated.
There are two reasons why you might consider life insurance when you are young:
1. You are married.
2. You have a kid, or many kids.
There are lots of other reasons why someone might want life insurance if #1 & #2 don’t apply. Maybe you want to leave some money to a charity, or a favorite relative. That’s not uncommon. Whatever the reason, you need to make sure that the beneficiary has what insurance folks call, “an insurable interest.” Basically, this means you can’t name your pet turtle, or your high school crush as your beneficiary unless there is a legitimate reason why they should be named as the beneficiary.
No matter what you choose, make sure you do your research of both the company and the product you are purchasing.