A common perception is that life insurance is bought once, preferably when you’re young, and then forgotten. In reality, there are stages to assembling a life insurance program, just as there are stages to life.
Ideally, your parents or grandparents bought your first policy when you were very young. Done properly, that can provide you with not only a nice base of permanent coverage, but also guarantee the ability to purchase more coverage in the future at standard rates, even if your health doesn’t warrant it.
However, if you aren’t one of the fortunate few, your first foray into the life insurance arena will probably be sometime in your 20s. From a productivity standpoint, it should be done when you get your first job, for several reasons.
First, it is likely that the premium will never be lower. Second, it will become a part of your budget. Third, and most important, is for any private student loans you may have. Public loans are discharged at death, but private loans are not. So to avoid saddling your next of kin with your private student loan debt, insure it.
Regardless of if you buy a policy before you “need” it, most of us experience one of life’s major events that suggest the need for life insurance when we are still in our 20s; buy a house, get married, have a baby. Those events create such a large need that they usually require at least some term insurance to satisfy them.
That, however, doesn’t put an end to our life insurance buying days. There are usually pay increases, housing upgrades, and more children, all requiring, in all likelihood, additional life insurance.
Even after all that, we are sometimes still not done. For those lucky enough to be a participant in a defined benefit pension plan, more life insurance is on your horizon. You can either buy it personally or take the plan’s coverage, but it’s very difficult to avoid entirely, unless you’re single.
While the American Taxpayer Relief Act of 2012 has increased the estate tax exemption to a point where most of us are not subject to federal estate taxes, New Jersey has not been so kind. Any New Jersey estate over $675,000 is subject to tax, although there is still the unlimited marital deduction, so the tax doesn’t kick in until the second spouse dies.
With only $675,000 of assets exempt, many New Jerseyans will find themselves subject to the tax. Life insurance has long been used to pay the taxman, thus transferring the estate intact to the heirs. It should be noted that life insurance doesn’t reduce the amount of tax owed, it just creates the money to pay the tax, thus enabling the entire estate to be transferred undiluted.
So as you can see, the purchase of life insurance is seldom a “one and done” event. As you move through life’s stages, your life insurance should be reviewed and updated, as appropriate.