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Life insurance in your 40s; is it necessary? Is it too late? Sure, you may already be on top of wealth management and retirement planning, but does life insurance really need to be a part of that too?
The answer, like most things in life, is “it depends.”
It's not uncommon to be without life insurance. In fact, many people do not yet have a life insurance policy, according to Life Insurance Market Research Association report. The 2010 report found that 30 percent of U.S. households do not have any life insurance and 44 percent only have an individual life insurance policy.
However, according to a 2014 Spectrem survey, the percentage of life insurance ownership is a lot higher among financially successful households, as 61 percent of mass affluent (net worth $100,000 to $1 million), 59 percent of high-net-worth ($1 million to $5 million) and 56 percent of ultra-high net worth families had some type of term life insurance or whole life insurance coverage.
Whether life insurance benefits are right for you depends on your goals and how much income protection your family needs.
Life Insurance and Your Priorities
Life insurance might not be on your radar now, especially if you are younger. Indeed for many people starting out managing debt , starting retirement savings, or even establishing wealth management tend to be higher priorities. Life insurance, while advisable for many, often isn’t a priority.
But if you are in your 40s, life insurance should be a particular consideration.
Why? First of all, life spans are increasing. According to a 2012 survey by the National Center for Health Statistics, average life expectancy for men and women in the United States has increased by more than five years since 1980. This means more people have two to three decades of a working career left when they hit their 40s.
Also, most people's finances get more complicated as they enter middle age. By that time, many people have families that depend on them and a significant number of assets that may need protection in the future. So putting financial plans into action in your 40s or even your 50s is not too late, given the increase in average longevity (Related: Saving in Your 40s and 50s).
Beyond age and finances are individual circumstances.
Let's say, on one hand, you earn more and you have kids. You pay a mortgage and you save for college through a 529 plan. Then you may want to explore the idea of a life insurance policy large enough to cover the potential expenses if you pass away. On the other hand, if your mortgage is nearly paid off and your children all have full-ride scholarships to college, your need for life insurance may be less critical.
Or, perhaps you're single with no children. If you're financially stable and relatively debt free, you have less of a need for life insurance. On the other hand, you may want to look into an appropriate life insurance policy to cover your debts and funeral expenses if you are financially unstable and have sizable debt.
That can get complicated as well. Basic varieties of coverage options range from whole life insurance, term life insurance and universal life insurance. The task of determining if a life insurance policy is right for you can be challenging. Some people opt to consult a financial professional.
In all scenarios, your decision about life insurance should reflect your current financial situation. To get a better idea of how life insurance fits into your finances, try MassMutual's life insurance calculator. It may be useful for your retirement planning to check out the retirement calculator as well.
Why People Don't Buy Life Insurance
There are a variety reasons why people don't buy life insurance policies beyond notions about age and timing.
Some are emotionally based. The process of finding the best life insurance can be annoying and perplexing. Many people are hesitant to involve agents, and struggle to find the right products or providers.
This process becomes even more complex when people try to tailor a life insurance policy toward different purposes such as estate planning, business situations or unique family circumstances.
Misperceptions about costs are also a major obstacle for people, according to the 2015 Insurance Barometer Study by LIMRA and Life Happens. The study found that Gen Xers overestimated life insurance expenses by 119 percent. So while they may not see the value in foregoing some current expenses to pay the high perceived costs of policy premiums, they may have more money to buy insurance than they expect.
Why People Do Buy Life Insurance
The obvious reason is that life insurance can provide cash infusions for dealing with the adverse financial consequences in the event of death.
For instance, your spouse potentially faces several significant financial decisions and responsibilities in your absence. This can become a burden for your family if you are unprepared for expenses such as funeral costs, debt, mortgages, college for your children, and the everyday costs of your household.
Generally speaking, people in their 40s buy a life insurance policy to ensure that these costs are not passed down to their families; or they simply want to minimize estate tax burdens for their heirs.
Is it Too Late for Life Insurance?
Short answer: no. The appropriateness of life insurance in general, and what type in particular, varies from individual to individual. These are just some of the pros and cons that affect the decisions of people in their 40s. But that's why some people opt to consult a financial professional.
This advice is coming from an insurance company, of course. Nevertheless it doesn't change the general wisdom of considering your financial circumstances and the appropriateness of life insurance in your 40s for your retirement planning, wealth management and estate planning needs.