Is life insurance for me?
Owning a life insurance policy makes sense if you have dependents, debt and/or want to cover your final expenses. But the right policy can do so much more.
Life insurance is a true multi-tasker. Besides providing a death benefit, certain life insurance products can help:
- pay off your debts and/or mortgage
- provide for your children/fund college
- leave an inheritance
- supplement your retirement income
- pay for unexpected medical bills and/or a future chronic illness
- build cash value to cover emergency expenses, home improvements, a wedding or a dream vacation
How much life insurance do I need?
You’ve decided that life insurance is right for you — the next step is determining how much coverage you and your loved ones will need.
While standard guidance suggests 10 to 20 times your annual income, this method disregards many factors, including future responsibilities (such as funding college) and other financial goals.
To find the right amount of protection, consider your unique needs and resources, as well as your future financial goals:
Immediate cash needs in the event of death
- Final expenses, which can be more than funeral costs
- Debt payoff — include credit cards, car loans, student debt, etc.
- Mortgage payoff, which will reduce monthly expenses
- Potential medical bills
- Emergency fund for family expenses during estate settlement (which can take several months to a year, depending on the complexity of the estate)
Ongoing income needs (keeping inflation in mind)
- Household income — include utilities, groceries, property taxes, transportation expenses, rent and more — while noting the length of time your loved ones will need to be supported
- Savings for the unexpected — a home or car repair
- Education fund(s) accounting for escalating costs of education and all additional costs, such as textbooks, travel, etc.
- Assets — your total household savings — include liquid assets as well as long-term growth accounts, retirement savings (IRAs, 401(k)s or equivalent) and any retirement income you have established with an annuity
- Spousal earned income
- Existing life insurance, such as through an employer
- Social Security benefits
Personal financial goals
- Leaving an inheritance, legacy or charitable donation
Once you have looked at your complete financial picture, it is time to decide what type of life insurance would best suit your needs.
Which type of life insurance is right for me?
There are several options when it comes to life insurance, depending on your needs and goals.
Plain and simple: I just need to cover my funeral costs and debts.
Final expense whole life insurance is the most affordable, simplest type of policy for those who need help with the financial burdens of funeral costs and paying off debts at the end of life.
Affordability and protection: I want to preserve my family’s income and future goals with an inexpensive plan.
Term life insurance protects your loved ones with your choice of coverage for a set amount of time. It is an affordable option for those wanting to replace lost income, pay off debts/mortgage, provide for college and more. You choose the appropriate coverage period – typically 10-30 years.
Lifetime benefits and cash value: I’d like more out of my life insurance plan.
Permanent life insurance provides lifelong coverage with the ability to build wealth that you can use in your lifetime. This means that your insurance can help with certain expenses during your natural life — such as adding to your retirement income, paying for the unexpected or financing a bucket-list trip. Index universal life is an example of permanent life insurance that can help supplement your future financial goals while you are alive — while still making sure those you care about are protected.
Establish peace of mind
The best navigators for your financial journey are financial professionals. Know your life insurance needs and ask for guidance on which insurance product (or products) makes sense. Keep in mind that everyone’s financial goals are different: let your professional assess your position and help make the right choice for you and your loved ones.
Take care of your loved ones when they need it most. Take care of you when you need it most. You’ll breathe easier as a result.
To learn more about building financial confidence with life insurance, click here. And remember, personal guidance from a licensed financial professional can help you choose the right solution for you and your loved ones.