This Be Good at Money video tutorial explains that the best time to buy life insurance often coincides with the first life-changing event in a person's life that increases their financial responsibilities to others. The event might be marriage, taking out a mortgage or having a child.
Softening the blow
Life insurance is typically a financial product that provides a lump-sum cash payout (or regular payments) to the beneficiaries in the event the policy holder passes away unexpectedly. As a person gets more financial responsibilities (with the purchase of a house, birth of a child and other milestones), life insurance offers peace of mind that these financial commitments could still be met if something happened to them. Given there is no guarantee you can completely protected from life's uncertainties, life insurance is seen as a way to soften the blow. More about the types of life insurance and how it works is explained in the related video What is life insurance and why do I need it?.
Determining the amount of coverage
There two main approaches to determining an individual's amount of cover.
The first approach involves multiplying the person's annual gross income by the number of years they want protection. Depending on preferences, the protection period might be until a house is paid off, children are independent or the policy holder retires.
The second approach involves forecasting future expenses. The individual can calculate current expenses then add in events that are likely to happen in the future (such as buying a bigger house, paying for a child's education or increased medical bills in old age) to reach the figure they want to insure.
Needs go down as well as up
It can pay to review personal circumstances annually to ensure the right amount of coverage is in place. If children have moved out of home and become independent, it might be prudent to reduce life insurance cover. If the household income rises, it might be an idea to increase cover. By doing regular checks, you'll be less likely to be under-insured - or over-insured.