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LIFE INSURANCE

Life insurance is one of those things that just about everyone needs but far too few people actually have. It’s easy to put off purchasing a policy when you’re young and relatively healthy. But the longer you wait, the greater the chances of something happening before you get yourself coverage. Maybe buying life insurance been on your to-do list for a while but you haven’t gotten around to it yet.

I recommend life insurance for anyone with a Spouse, or especially with dependent children. If your spouse or child loses your predictable income, how much of a change in their life would happen? Life insurance allows them to keep that predictable income stream at a time where they are the most vulnerable to that loss.

Here are some reasons to consider life insurance:

1. Replace Lost Income

Life insurance works to provide financial security to your loved ones after you pass away. You have to consider what would happen if you were to die suddenly. This is especially true if your loved ones rely solely on your income. Get yourself adequate coverage. That way, you won’t leave your loved ones helpless when the monthly bills come around.

2. Cover Burial Expenses

Sadly, even a basic funeral service can run upwards of several thousand dollars. While it’s possible to pre-pay for your funeral, people don’t often think that far ahead. Pre-payment can ensure everything is in place for your loved ones after you die. However, there are risks to pre-payment. Life insurance can give you and your beneficiaries more of a guarantee, lifting a burden off of them as well as yourself.

3. Pay Off Debt

Just because you die doesn’t necessarily mean your debts will disappear. In the instance that you and your spouse have co-signed for a mortgage or other loans, your spouse may become entirely responsible for repayment. The other outcome could result in creditors trying to collect from your estate. While that gets rid of your debts, your heirs will receive the depleted remainder. Life insurance allows those you leave behind to take care of any lingering financial responsibilities.

4. College Planning

There are a number of ways to save money for your child’s education. You may not have thought that a life insurance policy would be a viable option. But insurance payouts can actually provide a good supplement your savings. If your child ends up borrowing money to get through school, the insurance proceeds could also help wipe out pesky student loans.

5. Coverage is Affordable

One of the excuses people tend to make for not buying life insurance is the cost. But truthfully, coverage often ends up pretty affordable for most people. Term life tends to be less expensive than whole or universal life. Plus, the younger and healthier you are, the lower your premiums will be. Unless you smoke or have a preexisting health condition, you could find coverage for as little as $1 a day.

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How much Life Insurance Do I Need?

Larry Light (Contributor with Forbes) had a good article about this

How much income do your survivors need if you aren’t around? This is the only thing that really matters when it comes to determining how much life insurance you need. But to answer this you have to first add up your answers for the above questions.

Let’s say you know you spend $6,000 each month to pay all your bills including taxes. You calculate this using a personal budgeting software program so you know you are on target.

Let’s also assume that this $6,000 pays for everything including future college education, automobile purchases and retirement. Of the $6,000, you earn $3,500 and your husband earns $2,500.

You run a financial plan and figure that by age 65, your maximum Social Security benefit and income from your investments will replace your earned income. That’s when you retire. (Without a financial plan it’s really tough to know how much insurance you need.)

After you do this exercise, you know that you need to replace your income until you reach 65. That’s $3,500 per month for you and $2,500 for your husband.

Your monthly income is equivalent to $42,000 a year. You need enough term insurance so that if you pass away, you could invest the proceeds and earn $42,000 after tax. How do you calculate that?

If you assume you could earn 5% on the money, simply divide $42,000 by 5% and you have your answer. In this example, the number is $840,000. That’s how much savings you need to invest at 5% to earn $42,000.