Adequate life insurance eliminates the financial hardships that often occur when a person dies leaving their family behind. Simply put, if you have a family that depends on your income you need life insurance.
A common question asked is how much do I need? Since everyone’s situation is different there is no general answer. One question for you to answer as you determine the amount is, “what do I want life insurance to do if I were to pass away?”
- Allow your family to keep the home?
- Provide basic necessities of living (food, clothing, etc)?
- Maintain your family’s style of living?
Replace lost income?
- Assist in paying college expenses?
- Repay debts (auto loans, credit cards, etc)?
There are simple life insurance calculator programs that will factor in your current situation along with your requests to determine the amount you should have. Of course you can adjust that amount depending on your wishes. Below is a link to one such calculator.
Term Vs. Permanent (Whole Life)
Term life insurance provides insurance coverage for the length of time you request up front, usually ranging from 1 to 30 years. Should you die during the time you selected the policy will pay your beneficiaries. If you live beyond the designated amount of time the policy will not pay out anything. These policies are best for covering larger and/or temporary needs as they cost far less than permanent coverage.
Return of Premium: a new addition to many term policies is the return of premium feature, this accounts for outliving the policy. If you select a 20 year term and live beyond the 20 years you will get all of your premiums paid back in full.
Permanent life insurance has many variations but can usually has the common feature of an interest bearing savings (cash value) along with the death benefit. Because of this, these policies tend to be more expensive than term life insurance, however there are times when these policies are the logical option.