Life insurance has become an important necessity in our day. It really is not an option, although many people still do not have any. Oftentimes, when expenses of the family rise, life insurance is often one of the first things to go - but should it be? Do you really need it?
Here are some ways you can determine not only why it is important to have - but also how to figure out how much life insurance you need.
The need for life insurance
The main reason why life insurance is needed is to provide a financial hedge against the loss of the breadwinner of the family. If you are a two-income home, then the other income will still have to be replaced in order to maintain your current lifestyle.
Life insurance is needed because things like accidents and death are unforeseen. They are real possibilities, however, and being prepared for one or the other (or both) is the prudent thing to do for those left behind, or who have to care for you.
Medical costs today are extremely high, and one accident with even a rather short hospital stay can destroy a family's financial future with indebtedness.
Determining your life insurance needs
You want to start your calculations of how much is needed by considering how much debt there is. The reason behind this is that if the breadwinner dies, then the bills and debts still have to be paid.
So be sure to add into the value of your life insurance coverage the mortgage, other indebtedness including credit cards and cars, medical bills, and the cost of living for how ever many years you want the family to be sustained by the proceeds of the life insurance policy.
Don't forget to add in there the cost of property taxes for several years, too, - while the property is going through probate.
In addition, be sure to add funeral costs, and an amount to cover the possibility of sizeable medical bills in the event of an accident. This last figure hopefully will prevent the proceeds from the policy from being consumed by costs.
See also: Enhanced Life Insurance Calculator
The goals of your life insurance policy
It is up to you to decide the goals for your life insurance policy that you want it to provide for in the event of your demise. You need to consider the ages of your children, how long you want to support your spouse for, and a lot of it will also depend on how much life insurance you can afford, too.
If you want to add in to the insurance policy enough to cover the cost of your children's college education, or supplement it, then that amount will also need to be determined and added. You also want to consider cost of living increases, which amount to between 5-8% per year.
What you add into the policy coverage
You can do a lot with life insurance. It really depends on what you can afford and how you arrange it. For instance, here are some other things you may want to provide for, too:
- Create an inheritance
- Balance out an inheritance
- Leave money to your grandchildren
- Create an estate by putting it into a trust
- Leave money to a charity or religious organization.
The kind of life insurance to buy
The last thing that you will want to figure out is what kind of life insurance you want to buy. Basically, there are two kinds - whole life insurance and term life insurance.
Each one, particularly whole life, has variations which will differ among insurance companies - it will usually include some kind of savings feature over which you may have some control.
To make it plain, though, term life is just insurance without the frills and gives you more coverage for a limited time. Whole life, on the other hand, does have some frills - but you are going to pay for them.
Life insurance is definitely a very important need of today. You can easily compare life insurance quotes online in just a few minutes and be able to see what company can provide you with the best coverage. Watch out for scams and make sure the company is reliable before you buy.