If you financially support only yourself, there’s usually no need to purchase a policy. “However, if someone else relies on your income—a spouse, a child, or even an elderly parent—you should definitely have coverage,” says James Hunt, a life-insurance actuary affiliated with the Consumer Federation of America, a nonprofit association of advocacy groups. If you die, the insurance money goes directly to your beneficiary tax-free, thereby helping to protect your loved ones from financial misfortune.
Consider buying a policy with a payout that’s large enough to cover your mortgage principal. If you have young children, make sure it also covers the cost of college tuition. Opt for term life insurance, which charges a fixed annual premium over a predetermined time frame, rather than a whole life policy, which includes an investment component (a portion of the policy is held in an investment portfolio) and whose premium can be about 10 times the price of comparable coverage. (Go to term4sale.com to compare policies.) Typically, you should sign up for the longest term possible (30 years is usually the maximum), because you’ll get the cheapest rate. And look for a guaranteed renewable level premium, which means the cost of your premium won’t increase from year to year within the term. If you’re under the age of 35, don’t wait to buy a policy, says Bonnie Hughes, a certified financial planner in Reston, Virginia. You lock in a lower price the younger you are.