Life Insurance protects survivors when a breadwinner dies. It’s one of the more important areas of financial planning because not having appropriate insurance in the event of a tragic death can be financially devastating for a household.
There are two types of life insurance: term and permanent. Term policies are simple and relatively easy to understand. Permanent policies can be complicated. We’ll discuss both in greater detail later in this chapter.
Life insurance coverage obtained through your employer is likely to be a group policy. This usually means that you will not be required to undergo medical testing. But it also means your coverage will be somewhat limited and will end when you leave that employer. For these reasons you should consider purchasing a portable private policy on your own.
Our discussion below applies to private policies. These typically require medical testing, especially if the policy is for a large death benefit amount, in excess of $500,000.
On average, women have higher life expectancy than men. As a result, women generally pay lower life insurance premiums for the same death benefit coverage than men of comparable age and health. Applications by pregnant women may be rejected or postponed by insurers. A subsequent section of this chapter provides additional information on pregnancy and life insurance.
Should non-breadwinners be covered by life insurance?
You should consider insuring any adult whose death would cause financial stress for the household. It's obvious that the death of a breadwinner would be financially devastating. What about a homemaking parent who does not explicitly earn a salary?
The homemaking parent adds significant value to the household. If that person was no longer around, some of those same functions: caring for children or elderly dependents, preparing meals, cleaning, etc., would have to be completed by someone else. Those services could be very costly. Accordingly, some life insurance coverage for those forecasted costs would be wise.