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Life Insurance: One of the Most Important Decisions in Your Life

The important of life insurance has always been understated. Some Americans feel that the life insurance that they get with their employer (if they are even that lucky) is plenty. Most Americans don’t even know how much life insurance they have or how much they need. Neglect for careful life insurance planning in most cases will lead to a disaster. Life insurance does not have to cost a fortune and can reap benefits for you weather you live a full life or die unexpectedly.
The following are ways in which you can determine how much you need from a practical standpoint. Of course you should always consult your insurance professional before making any decisions. To learn more about the various types of life insurance try reading BankRate.com’s Guide To Life Insurance.

  • What are your future liabilities? – Take another piece of paper and list all of liabilities you are likely to include in the next 20 years. Do you have children? They cost quite a bit of money, especially if you are considering paying for some or all of college tuition. Other future liabilities could be deferred debt such as student loans, future medical bills, future income needs, etc.
  • What is your/your family’s health history? – This is the most under-considered question when planning for life insurance. The younger you are and the healthier you are the easier life insurance is to obtain. Purchasing life insurance at a young age is also good because it is relatively inexpensive. If you have any illness that is consistent in your family it is imperative to purchase whole life or universal life insurance as young as possible. Simply put you can not get life insurance when you are sick and then it is too late. Some people even purchase policies on their children for this reason.
  • What are your current liabilities? – Take a piece of paper and list all of your liabilities. This could include a mortgage, car payments, personal debt, etc. When you die your debt doesn’t so you want to make sure you have enough to cover your current debt so that it does not land in the lap of someone else.
  • What is your income and how many people depend on it? If you live alone and have no children or other dependants this one is easy because you may not need to replace your income for anyone. However, if you have a wife and three kids you may need to deeply consider this. A prudent planner factors their salary times the number of dependants (include spouse working or not) times two. So a single income family of four making $50,000 would add a need of $300,000 to their life insurance.
  • What is your value? If you don’t work for money, but people depend on you, you still must insure your “income” though it is not actual. For example, a stay at home parent may not have an “income,” but activities such as child care, house cleaning, mean preparation, etc. can only be replaced with money. If you are married and your stay at home spouse passes unexpectedly you are going to need to pay a babysitter, housekeeper, etc so that you can still work. You need to find out just how much stay at home mom/dad is worth.
  • Final expenses? – In this day and age it is prudent to add between $5,000 and $15,000 for burial expenses.
  • Any special gifts? – It is becoming more and more popular to designate a charity or organization as a beneficiary on your life insurance. A lot of people feel that this is a way that they can always be remembered. Please carefully consider this option with your insurance professional and designated charity.

By considering all of these factors together you can determine how much insurance you need. When you come to the calculation take a deep breath; it may look much greater than you think. Truth be told most family breadwinners with kids need at least $500,000 in life insurance to live prudently. Don’t worry new types of insurance and special financing options can make even great amounts of insurance very affordable.
 

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