Why Do You Need Life Insurance During a Recession?
During times of recession, paying for a life insurance policy might not be a top priority for most people. But life insurance during recession very essential, it is even more important to have a safety net for your loved ones when times are bad.
Everyone is aware of why Life Insurance During Recession is important, however many of us pick out to ignore the reality of what would occur if we were to die suddenly without the desirable protection. The results could be devastating for your surviving household members, leaving them with a large bill for your final expenses, or even worse, loss of the family home due to the fact they can no longer cover the mortgage.
If you don’t currently have a life insurance policy, you are not alone. According to Life Insurance Statistics and Facts, which is a report put out by the life insurance industry, about 43% of the population don’t own a life insurance policy in any amount.
The US is officially in a pandemic-driven recession, according to the National Bureau of Economic Research. With economic uncertainty and unemployment numbers rising, many people are getting their financial affairs in order — and looking at life insurance.
If you have dependents, it’s worth considering a policy if you can comfortably afford it. And there are ways to make your premiums more affordable.
Why life Insurance is (even) more essential during a recession
An affordable term life insurance coverage is one of the excellent methods to protect your household in both good times and bad — because if there’s one thing we know about life, it’s that it can be unpredictable. That’s why life insurance is simply as necessary in the course of a recession as it is at some stage in a period of economic growth. In fact, it’s even extra precious to have your life insurance policy in place when instances are bad. Here’s why life insurance is needed even during bad times.
1: Life insurance during a recession provides a financial safety net: If the worst-case scenario were to happen, a term life insurance policy can provide much-needed financial security — and this security becomes even more important when times are tough. Life insurance is designed to help your loved ones cover the cost of your funeral, pay off bills and debts and plan for the future, all of which might be harder to fit into a budget during a recession. Since term life insurance policies are most affordable when you are young and healthy, it’s a good idea to shop for a life insurance policy online early so that you can lock in the lowest possible monthly premium. For example, a healthy 30-year-old woman can buy a 30-year, $500,000 for only $28 per month. The premium will remain the same for the entire term of 30 years.
Who needs life insurance? If you have a partner, children or aging parents who depend on you financially, you’re going to want to take out a life insurance policy. “Life insurance is a must for married couples and for anyone who has someone who is dependent on their income or their potential income. If you have elderly parents, if you have children, it’s a must.
2: Life insurance can help pay off debts: If you lose your job during a recession, you might find yourself turning to credit cards to cover everyday expenses — and, like many Americans, you might end up in a little bit of credit card debt.
Whether you’re in debt now or are worried about going into debt in the future, a good life insurance policy can help your loved ones cover those outstanding debts if something were to happen to you. If you and your spouse share a credit card, for example, or if you and your parents cosigned a student loan, the proceeds from a life insurance policy can help with those debts after you die.
3: Stay-at-Home Parents Need Insurance During a Recession Too: Mike and Rosemary have been married for seven years, and for most of that time Mike has been lucky enough to stay home with the kids while Rosemary has been the primary breadwinner. While Stacy earns a good living, she would struggle to cover the cost of a nanny or other childcare provider if something were to happen to Mike.
Mike provides a variety of services to the family. He takes care of childcare, transportation, managing the household and their finances. He also deals with repairs and maintenance for their home. Mike also earns a small income doing handyman services around the neighborhood.
They decide that in the event something happened to Mike, a life insurance policy would ensure that Rosemary would have enough money to hire the necessary help or take a few years off to stay at home as the family learns to cope with the loss.
Sarah purchases a 20-year term policy with a death benefit of $750,000 that will give her the financial means to replace the services Mike provided for the family as well as cover the cost of sending the kids to college.
Frequently Asked Questions:
1: Can I buy life insurance during a recession? The answer is Yes — as long as you can pay your premiums.
As part of your application, your insurer will request information about your finances. You can expect to be asked about your income and place of employment, and possibly your net worth.
These details help your insurer determine whether you can afford a policy, as well as how much coverage you can buy. For example, if you earn $30,000 a year and you want to buy a policy worth $1 million, you’ll need to prove that you have other income to support such a large policy.
2: Do life insurance rates increase during a recession? Not necessarily. Despite the economic uncertainty, life insurance companies don’t usually raise their rates during a recession. They have investment managers that prepare for short-term volatility, and a lot of money in the bank — so to say — to withstand less profitable periods.
However, if a recession lasts longer than expected, insurers may incrementally increase their rates. If that happens, it shouldn’t affect term life insurance premiums too much. But it may impact the cost of permanent policies, like whole, universal and variable life insurance.
That’s because permanent policies are tied to the market. When interest rates drop — as they often do in a recession — insurers’ profits on those products may drop, too. Plus, permanent policies last a lifetime, so the insurer has to assume a higher risk to issue them.
To protect their bottom lines, life insurance companies might raise their rates. But again, it’s rare for a recession to last so long that insurers are forced to do that.
3: I already have a life insurance policy. Will my premium change? No. Once your life insurance policy is issued, your insurer can’t change your premium — even during a recession.
If you’re struggling to pay your premiums during this time, you’re not alone. Before missing a payment, ask your life insurance company if they have a premium relief program. Many state insurance departments instructed insurers to offer flexible payment plans and extend grace periods in light of COVID-19.
4: How do I know if my insurer can still pay out my policy? As with any other industry, life insurance companies can go bankrupt — but there are protections in place for policyholders.
Every state has a guaranty association, which steps in if a company can’t cover its debts and takes over the policy payouts. There are limits, though. Typically, guaranty associations can pay up to $300,000 in death benefits, and $100,000 in cash value.
Many insurance companies also have reinsurance companies, which act as a financial backup. If your insurer can’t pay out your full claim, the reinsurance company will make up the difference.
5: Should I buy life insurance during a recession? Well, it depends on your financial situation and whether or not you have emergency savings.
If you have loved ones who rely on your income and you don’t have enough savings to self-insure, a policy can provide a financial safety net. That way, if you die prematurely, your family can use the payout to stay afloat and figure out their next move.
Most people put the death benefit towards these expenses:
- Mortgage or rent payments, which could help your family to stay in their home
- Everyday living expenses, like groceries, utility bills and car insurance
- Childcare or school tuition
- Paying off outstanding debt, such as student loans and credit cards
- End-of-life costs, like a funeral or unpaid medical bills
- Care for ageing or ill parents
If you have an investment portfolio or retirement policy, a life insurance policy can also help to make up for any losses in the stock market. Thanks for reading! Cynthia Coleman