Getting the life insurance you need
No one likes to think about dying, but protecting your family against the financial hardship of an unexpected death should be part of your financial plan. Here are some guidelines and considerations that can help you find the life insurance that is the right fit for you and your family.
How much is the right amount of life insurance?
For most people, life insurance is simply a way to ensure their spouse and children will not experience significant lifestyle changes if they die prematurely. For other individuals, life insurance is part of a more sophisticated estate plan.
Single individuals, may find their need for life insurance to be low or non-existent. If no one is dependent on your income to maintain their financial independence, you should carefully consider whether spending for life insurance is the best use of your funds.
If others are dependent on your income, life insurance should be a key component of your financial strategy. There are many complex methods to calculate the amount of coverage that take inflation, debts, children, retirement plans and estimated investment returns into account.
If you want a simpler approach, a good rule of thumb is to obtain coverage equal to eight to ten times your annual income. For example, if you have income of $75,000, you may want to have life insurance policies providing $600,000 to $750,000 of death benefits.
If you have young children, dependents with special needs, large debts or other special considerations, you may want to be on the higher end of this range. For example, if you expect a child to attend a private college, the annual costs could be over $40,000 today - with college expenses increasing at a rapid pace . To cover those expenses, you may want to increase your coverage by some multiple of the annual cost to cover four years of college and to take potential inflation into account.
What type of policy is best for you?
The two basic types of life insurance policies are - term and permanent. Term policies offer protection for a period of time. For example, while you have kids living with you until they graduate from college. Term insurance is payable on the death of the insured.
Permanent life insurance provides a death benefit but they also have a "cash build up" feature that acts like a tax-deferred savings account. These policies have a cash value. Types of permanent life insurance policies include whole life, universal life, variable life, and variable-universal life. Typically, these permanent policies are more costly than term life insurance.
When evaluating these types of policies, be sure to consider all the costs, the amount of death benefits and ask for a history of "cash value" earnings the insurance company has paid previously. You may find that it makes sense to "buy term and invest the rest."
Where can you find life insurance?
The first place to begin is with your employer. Many companies offer life insurance as part of their employee benefit program. Some companies pay the entire cost for a certain level of benefits and then offer a supplemental insurance option. You may have the ability to buy a policy with benefits of one to three times your annual income at relatively low rates. The rates on these types of group plans are often very attractive. Be sure to consider whether the level of coverage your employer provides is sufficient.
Few people like to think about dying or the need for life insurance, but it is one of the most important things you can do to protect your loved ones from financial hardship. Be sure your financial plan provides the protection your family needs.
We can help
We can assist you in calculating the amount of life insurance coverage that is appropriate for you and your family and determining the type that best suits your needs. Visit one of our branches or call us at 1-800-288-3425 to learn more.