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Life Insurance
Things to consider about life insurance
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How
much Life Insurance is right for you?
How much coverage should
you own personally, not counting group term coverage?
With so many people frequently changing jobs these
days, many are learning that owning and controlling
their own life insurance policy has many important
advantages. In addition they are often surprised to
learn that they have been significantly underinsured.
Traditionally, individuals
tend to buy life insurance in round numbers — such
as $100,000, $250,000 or $500,000 — or using the
general rule of purchasing 8-10 times their household
income. Few actually try to determine the correct amount
to purchase. While doing so is a relatively simple process,
it can be uncomfortable for some because it involves
thinking about death. Given the importance of this issue
to survivors, the best solution is to move beyond that
discomfort and plan accordingly.
Determining
What You’ll Need
Consider family needs
within the first few months of your death. Funeral expenses,
administrative costs and other immediate expenses can
be shocking. In addition, clearing up unpaid bills or
revolving debt like credit cards or consumer loans is
often necessary.
Determine how much will
be required to pay off any remaining mortgage balance
on your primary residence.
Providing an education
fund for your children is also critical. There are many
schools of thought regarding this, but you must consider
how much money you would like to see allocated for your
children’s education in case of your death.
The final issue is often
the largest — income replacement. If you have taken
care of the above-mentioned needs, most studies indicate
that a typical family can maintain its standard of living
on 60-75 percent of pre-death household income. While
it is a personal choice, you must consider whether the
beneficiary will live off the principal paid by the
policy or the income it generates through investments.
It is also important to consider the length of time
this money will cover. Most families decide that this
should last at least until your children are out of
college.
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