Life insurance is one of those topics that most people avoid. However, it’s a crucial topic that should be discussed and explored in detail well before the time it’s actually needed. The purpose of life insurance is to allow your family members to pay the bills and live their lives as planned despite your absence.
There are a few things to consider before jumping into a life insurance plan:
1. Do you need life insurance?
The simple answer is this: if you have dependents to protect and/or don’t have enough liquidity to cover final expenses such as burial, outstanding medical bills or other financial responsibilities, you need life insurance.
Life insurance has become more important than ever for women, as they take on more prominent roles in the workforce and become significant contributors to household income. In fact, a Pew Research study found that in 4 out of 10 households, mothers are either sole or primary breadwinners. This number will only increase over time, as women now make up 51% of college graduates and their incomes are continuing to rise.
2. What kind of insurance should you get?
There are two basic types of life insurance:
Permanent coverage, often known as universal or whole life insurance, provides coverage over your lifetime, has a cash value feature against which you can borrow, and stable premiums.
Term life insurance provides protection for a specific period of time, but the premiums increase, particularly if you choose to “renew” at the end of the term. Term life insurance is generally less expensive, but doesn’t build cash value.
Depending on your family’s needs, you can structure an insurance plan that combines both types of life insurance.
3. How much life insurance do you need?
The answer to this question involves a little more digging before you can determine the amount that is right for you.
How much debt do you have other than your mortgage? If you have debt, you have to buy more life insurance to pay it off.
How much do you spend each month? Use your bank statements to estimate your spending. Don’t just guess at what your family would need, give it careful thought.
Do you have a solid savings plan? If so, you may not need to purchase as much life insurance.
How much income do your survivors need if you aren’t around? The answers to the above 3 questions will determine how much life insurance you really need.
A great resource that you can access in the privacy of your home is: lifehappens.org. You’ll be guided through a few questions to help you arrive at the amount of insurance you’ll need to protect you and your family. While that’s a great starting point, it’s best to meet with a financial advisor or insurance professional to review the specifics of you and your family’s unique situation. Don’t brush off the issue of life insurance, do your part now to ensure that your loved ones are well taken care after you are gone.
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