What Is Life Insurance and Why Is It so Important?
Life insurance comes in all shapes and sizes, but in its simplest form, life insurance provides a lump sum payment to your loved ones in the event of your death, this is known as a “death benefit.” This money can be used by your loved ones to pay for funeral expenses, personal financial matters, or as a means of settling your affairs among other things.
All in all, the benefits of having a life insurance policy are many, and when it comes to deciding whether or not you should consider investing in a life insurance policy, the short answer is
yes. However, this may not be enough to convince you. If that’s the case, consider the following:
- Life insurance may be able to help ensure the continued protection, financial stability, and security of your family after you’ve passed.
- Life insurance helps you to leave an inheritance for your loved ones; it may be able to help set your children up for a stable financial future.
- Life insurance allows your family to help pay for your funeral expenses so they can mourn without financial burden.
- Life insurance allows your family to help pay off any remaining debts and expenses you may have accrued without worrying about paying it off themselves.
The average American spends approximately $18,000 on non-essential expenses per year.
How to Budget for Life Insurance
One of the leading misconceptions of life insurance is how much it costs— but monitoring your spending can help make any life insurance policy budget-friendly— so where exactly should you be looking to cut back?
Our spending habits are composed of two main categories, essential and non-essential expenses.
1 That is to say, we have bills that we need to pay every month, goods we need to survive, and then the rest. These necessary expenses, like food, rent, car payments, insurance, electricity, gas, etc., are known as
essential expenses—and remain more or less the same every month.
Non-essential expenses can include everything we want but don’t need, and can account for anything from clothing, nights out, monthly subscriptions, morning coffee, and more. All in all, when looking to budget, we want to cut back on our
non-essential expenses.
5 Ways to Cut Back Spending on Non-Essential Expenses
According to USA Today, the average American spends approximately $18,000 on non-essential expenses per year.
2 Thankfully, there are some practical things you can do to cut this number down without sacrificing all the things you love to do, for example:
- Eating Out - We love going to restaurants—but if you eat out every day you may be spending more money than you think. Let’s say you eat out five times a week and each meals costs around $8. By the end of the year, you would have spent $2,080 just on your weekly meal outings! Try cutting back on your visits to your favorite spots and bring a packed lunch to work instead.
- Morning Coffee - Need caffeine to function? Us too! However, when morning coffees are ranging around five-dollars per cup, you could save significantly by brewing your own coffee at home.
- Subscriptions - Between Netflix, Amazon, Spotify, Disney Plus, and more, whatever way you look at it, subscription services and boxes have gone out of control. That said, chances are you’ve subscribed to your fair share of them. Double check to see what services you can cut back on, as you may find these are racking up unnecessary expenses.
- Impulse Purchases - We’re all guilty of caving to our impulses from time to time—and that’s okay! The key to avoiding serious impulse purchase issues comes down to knowing what you need, and sticking to your list.
- Food Delivery Services - Food delivery services can be expensive. Thankfully, the alternatives to them aren’t. So, before you snuggle in to your Friday night movie and delivery pizza, consider making a home cooked-meal or prepping a store-bought alternative.
Little Savings Go a Long Way
As you can see, budgeting for life insurance doesn’t have to be a chore. All it requires is that we make financially responsible decisions. By cutting back on non-essential expenses like trips to your favorite coffee house and restaurant, and buckling down on impulse purchases, food delivery services, and subscriptions, managing your essential expenses becomes easier. So, when looking to add life insurance to your list of essential expenses, no one is asking you to stop doing what you love. If living in moderation allows us to provide continued security to our families, why not commit to doing so?
Sources:
- Money Instructor, How to Create a Personal Budget: Tracking Expenses, 2018
- USA Today, You don’t need that: Average American spends almost $18,000 a year on nonessentials, 2019