How much life insurance do I really need?

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Here's what you need to know...
  • The amount of coverage that you select should be sufficient cover debt and future financial obligations
  • For larger amounts of coverage, the average person will purchase term insurance that lasts for a fixed period of time
  • Term insurance is both affordable and comes with fixed premiums until the term expires
  • When assessing your coverage needs, be sure that you understand that group coverage through work can disappear if you switch jobs or if you retire
  • Permanent insurance can be combined with term insurance to cover specific expenses that’ll never go away like the cost of burial and funeral
  • There are some useful life insurances needs calculators that can help consumers decide which death benefit they’ll need to provide for their family

Financial planning is something most people think of when they get married and have a child. If you’re in the process of planning for the future, one thing you’ll need to do is decide on how much life insurance you need now and in the foreseeable future. Unfortunately, you can’t just choose a death benefit out of thin air and expect it to be sufficient as you go through different stages of your life. Start comparing life insurance rates now by using our FREE tool above!

You’ll need to do your research, set a reasonable budget, decide on a policy type, and then shop the market to really feel secure in your decision. If you’re not an expert in life insurance and aren’t sure where to start, you may need some help navigating through options and calculators. Here’s a guide to selecting the right death benefit based on your financial planning goals so that you can pass on a legacy or you can provide for your family long after you’re gone.

Who really needs life insurance?

If you’re sitting back and asking yourself if you really need life insurance, you’ll need to ask whether or not someone will suffer financially if you were to die today. The most common reason to buy life insurance is to provide those who’re dependent on you financially with the cash that they need to replace income or to pay down debt.

If you have debt, you have dependents, and you haven’t saved for your final expenses, you have at least a minimal need for coverage.

Then there’s also people who want to leave an inheritance to their heirs or cover estate taxes with life insurance proceeds rather than their hard-earned money. As you can see, it’s not just parents with little children or homeowners who should consider buying this valuable financial product.

Life Events That Spark the Need for Life Insurance

Buying insurance while you’re young can be truly beneficial to your pocketbooks. Since the rates are often based on your age at the time of the application, you can manage your costs for coverage by applying when you’re in the best health. Certain life events spark the need for coverage or the need to reassess the amount of coverage you should buy. If you experience these life changing events, you should be reviewing your insurance portfolio:

  • You’re Recently Married

If you were to pass, your surviving spouse would have difficulty surviving without your income. Since married couples combine their incomes to cover living expenses and pay off debts, trying to manage all of these bills without any income replacement can be difficult on someone who’s already trying to cope with a loss.

  • You Just Had a Child or Adopted

If you have a child, that child is dependent upon you to care for them. If one parent passes, the family’s standard of living could change unless that parent had life insurance. Kids cost a pretty penny to raise in the form of food, clothing, shelter, educational costs and childcare. Both married parents and single moms have a great need for life coverage.

  • You Started a Small Business

Life insurance can protect both your family and your business. Many wise small business owners will open a policy to find a buy-sell agreement so that all of the legalities are handled if they were to pass away. It’s important to get a policy that funds a buyout agreement separate from a personal policy.

What kinds of life insurance should you buy?

Now that you’re sure that life insurance is the right financial planning tool for you, you’ll need to decide on a type. In the big world of life insurance, there are two popular categories of coverage: term and permanent life. Each product has its own advantages and drawbacks that you should be aware of as you build a portfolio.

Pros and Cons of Term Life

Term life, which is also called pure life, is a temporary policy that lasts for a specified period of time. While there are one-year terms with premiums that go up every year, the 10, 20 and 30-year terms are more popular and have fixed premiums based on the age at inception. The major disadvantage of term insurance is that it can expire before your need for life insurance is up without proper planning.

Pros and Cons of Permanent Insurance

Permanent insurance has a pure life component and an investment component. Instead of expiring, the permanent insurance stays in force for life as long as you continue your payments. If you buy a whole life policy, your premiums stay level for life. If, however, you buy a universal life policy, you may have to increase funding to keep it active. Premiums are higher than term insurance, but you’ll have more peace of mind in knowing your coverage will never end.

Deciding on a Death Benefit Amount

The next step is to choose the appropriate death benefit after you’ve chosen your policy type. It’s easy to forget different expenses you should add into the mix, and that’s where a life needs calculator can help. Here’s a comprehensive list that can help:

  • What is the balance of your mortgage?
  • How much debt do you have other than your mortgage?
  • How much will be needed at death to cover final expenses, medical bills and other immediate expenses?
  • How much future income is needed to sustain your family’s standard of life?
  • How much do you need to put away for future educational expenses?
  • How much would you need to cover potential estate-settling taxes?
  • Do you want to add on extras to pass on an inheritance?
  • Do you have any group life? If so, decide whether or not you want to subtract it from your total.

While some use different rules of thumb to calculate life insurance needs, you can’t really come to a number until you look at your goals, budget, and finances. After you’ve done this, you’ll be ready to shop around. Use an online rate comparison tool and price the cost of the coverage you’ve settled on so that you can get the most life coverage for your money. Start comparing life insurance rates now by entering your zip code in our FREE tool below!

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