What Type of Life Insurance Do I Need?
Here, we explain the two most common types of life insurance so you can make an informed decision on which option is right for you.
When & Why Do You Need Life Insurance?
We’ll help you find the answers, no matter where you are in life – watch to learn more. Then, get started by exploring which life insurance option is best for you.
We understand that life insurance can seem complicated, and we want to help make it easier. Here, you’ll find answers to our most frequently asked questions.
What Is Life Insurance and How Does It Work?
What Is Life Insurance?
Life insurance is a contract between you and the insurance company where you pay a rate to the insurance company who then promises to pay an agreed-upon amount to the person (beneficiary or beneficiaries) of your choosing should you pass away. It is there to give you added peace of mind and help protect the people most important to you.
How Does Life Insurance Work?
After purchasing a policy that covers you and your family’s needs, you will make a premium payment throughout your life or for a term length. If you pass away, your beneficiary will file a claim with your insurance company. Once all of the information is verified, your policy’s death benefit will be paid out to the beneficiary.
Why Should I Have It?
Life insurance is a great way to help protect those who matter most to you. Should you pass away unexpectedly, your family may not be able to pay for things like funeral costs, medical bills, mortgage payments, or existing debts. With life insurance, you can help ease financial burdens for those you love.
How Much Life Insurance Do I Need?
How Much Life Insurance Is Right For Me?
Deciding how much life insurance coverage you need starts with one simple question: What would life be like financially for those you care about if you were to pass away?
While it may be difficult to think about the answer to this question, it’s important to make a list of all of your needs and bills – the ones you have today and the ones you will have down the road. With too little coverage, your family might not receive all the financial protection you would like them to have.
What Next?
Give our Needs Calculator a try to get a better picture of how much life insurance coverage would be ideal for you and your family.
What Kind Of Life Insurance Do I Need?
What Is Term Life Insurance?
Term coverage can be a great way to help cover big expenses—like a mortgage or college tuition. This coverage is designed to last a specific period of time, or “term” —usually the years when you need coverage most.
What Is Whole Life Insurance?
Whole life is designed to last a lifetime with premiums that never change. Your policy can also accumulate cash value that you can borrow against.
What Is Universal Life Insurance?
Universal life insurance is highly customizable, and can provide a lifetime of coverage with flexible premiums and benefits to help meet your specific needs. Your policy can build cash value to help pay for expenses during retirement and more.
When Should I Get Coverage?
What Do You Need To Cover Now?
A life insurance policy could help cover your family’s day-to-day activities and living costs, as well as any debts — like your student loans — that you don’t want to pass on to your parents or your spouse.
What Might You Want To Cover Later?
AAA Is Here To Help!
Why You Need More Life Insurance – Even if You Have It Through Your Job
When you go out to eat at a nice restaurant, do you prefer being able to pick out your meal, or are you fine with the waiter bringing out whatever they have available at the moment?
If you have to buy a new car, do you trust the salesperson to bring you the model, mileage, color and features they recommend, or would you rather have some say and get what you want?
Would you wear clothes that were blindly picked out of your closet on a first date, or do you have some favorite go-to outfits that better showcase your style?
And while everyone has had a bad meal, a car that didn’t last as long as you hoped, or a fashion horror story, we all value the ability to have chosen for ourselves – and more often than not, we got what we wanted and it worked out great.
When it comes to life insurance, you have that same choice. But one of the most common phrases we hear is: “I don’t need life insurance, I already have it through my job.” While life insurance through your employer is a fairly common and good idea, you should take a moment to ask yourself a few questions:
“Is this policy meeting my needs?” or “What happens if my job changes?”
Individual Policies to the Rescue
The life insurance that you may have through your employer is typically what’s known as a group policy – generally, a single life insurance contract that provides the same coverage for a large group of people, and how much of the premium is paid by the employer can vary.
There are also voluntary policies, which are also employer-provided, but fall to the employee to pay the full premium (at a group rate) to the insurance company.
But with an individual policy, like those offered by AAA Life Insurance Company, you can get a more comprehensive policy that is tailored to meet your exact needs – and you own it. Employer-provided insurance typically pays out one to two times your annual salary. Is that enough? How much life insurance do you need?
A general rule of thumb is to shoot for at least seven times your annual salary. Think about everything that life insurance can pay for: your mortgage, car loan, any additional debts, general living expenses and monthly bills, your funeral and burial costs, future college expenses for any children, and anything else your loved ones may be challenged to pay for if something happened to you. It adds up quickly.
And keep in mind that employer-provided insurance doesn’t come with you if you change jobs. Your employer could also change the option provided to employees, leaving you with less coverage than you’re used to. Or, maybe you have plans to retire early, but still want the additional financial protection for your family. When you sign up for an individual policy, you can pick the length (term) you want it to last, or shoot for a permanent policy that doesn’t expire. (Learn more about those options here.) Now, you’re covered no matter what happens.
Why Not Both?
The coverage that may be offered by your employer is still a very valuable benefit. In most cases, it’s incredibly convenient: you can often get coverage without a medical exam or health questions (although, if you’re young and healthy, an individual policy could be cheaper), and the cost can be deducted from your paycheck. Combining a group and individual policy is a great way to maximize your benefits and coverage.
