Life insurance basics

Here are Ladder’s answers to common, initial questions about insuring your life.

1. What is term life insurance?

Term life insurance pays your family a lump sum of money if you were to die within the term, usually 10-30 years. The amount (typically tax-free) can provide the financial resources you would have contributed for living expenses, a mortgage, and children’s education.

2. Do I need life insurance?

When someone depends on you, it’s time to structure life insurance into your financial plan. If you don’t have any debt or dependents, you probably don’t need life insurance.

3. When should I get life insurance?

The earlier you purchase coverage, the better your price. That’s because life insurance rates are based on several factors, including age, gender, health, and whether or not you’re a smoker. Since your price stays flat for the entire duration of your term, it’s important to lock-in that rate as soon as possible. If you wait five years to buy, that level cost will be significantly higher because you’re now five years older. Waiting to purchase a policy also increases the chance that you could develop a health condition before locking in a low rate.

4. What if I’m covered through my benefits at work?

Employer-provided life insurance is typically an add-on benefit that ranges from 1-3x your salary—in most cases, not nearly enough coverage. In addition, if you change jobs in the future, willingly or otherwise, you may have to get individual life insurance—likely at a higher price.

5. How much life insurance do I need?

A good place to start is with Ladder’s Calculator. How much you will need is a highly individual question. There are 4 basic building blocks to consider.
First, what is your debt? Often the most significant debt a person has is a mortgage. Being able to pay that off with funds from life insurance could significantly alleviate financial concerns for your family and give them the ability to avoid moving if they choose.
Second, what will be needed to cover living expenses? If your income were no longer available, what would your dependents need each year to pay for expenses? And how long would they need that money? If you’re a stay-at-home parent without an official salary, life insurance can cover the cost of hiring someone to care for your children or to give a currently working parent the choice of whether to continue working or not.
Third, how many children do you have? In addition to living expenses, you may want to provide funds to cover college expenses.
Lastly, what are your existing resources? The more you have in savings, the less life insurance you’ll need. And if you have some insurance in place already, you’ll want to take that into account.
Once you consider these 4 building blocks in the Ladder calculator, you’ll have a good sense for your needs. Your next step: get a quote to see the cost of covering those needs. Then, you can factor in your budget to choose what amount of life insurance is right for you today.