The purpose of life insurance is to provide a source of income, in case of your death, for your children, dependents, or other beneficiaries. (Life insurance can also serve certain estate planning purposes, which we won’t go into here.
Whether you need to buy life insurance depends on whether anyone is depending on your income. If you have a spouse, child, parent, or some other individual who depends on your income, you probably need life insurance.
Life insurance protects your family in the event of death. Most people do not have the right amount of insurance. It is important to determine the amount that suits your needs.
There are two basic types: term and permanent. Term insurance is simply insurance that covers a specified period. If you die within this time frame, your beneficiary receives the insurance benefit. Term policy premiums usually increase with age.
Permanent insurance, such as universal life, variable life, and whole life, contains a cash value account or an investment element to the insurance.
Rules of Thumb
The younger your children, the more insurance you need. If both spouses earn income, then both spouses should be insured, with insurance amounts proportionate to salary amounts.
Tip: If the family cannot afford to insure both wage earners, the primary wage earner should be insured first, and the secondary wage earner should be insured later on. A less expensive term policy might be used to fill an insurance gap.
If one spouse does not work outside the home, insurance should be purchased to cover the absence of the services being provided by that spouse (child care, housekeeping, bookkeeping, etc.). However, if funds are limited, insurance on the non-wage earner should be secondary to insurance for the wage earner.
If your spouse could live comfortably without your income, then you will still need life insurance, but you will need less than someone who has dependents.
Tip: At a minimum, you will want to provide for burial expenses and paying off your debts.
If your spouse would undergo financial hardship without your income, or if you do not have adequate savings, you may need to purchase more insurance.
The amount will depend on your salary level and that of your spouse, on the amount of savings you have, and on the amount of debt you both have.
We can help you determine the proper amount of life insurance. Give us a call and we’ll discuss your situation.