If you have a family that depends on you and the financial stability you provide them, chances are you’ll want to make sure they are taken care of when you are no longer around. That said, there are a variety of options to help you achieve this goal. One of the best is life insurance. Of course, you’ll have to examine the different types of life insurance to learn which one is best suited for your particular situation.
Term life insurance, for example, is a policy you take out for a defined amount of time, typically ranging from 5-30 years. The downside of this type of insurance is that there is a possibility you can outlive the length of your policy. In contrast, whole life insurance is a lifelong policy, but it is also one of the most expensive types of insurance to carry.
Figuring out what type of policy you need and the different rates you’ll pay for your insurance premium are both things you need to take into consideration when shopping for life insurance. You need to make sure you stay within your budget because if you find you cannot make the payments, your policy will be canceled and your family unprotected.
Why You Need Life Insurance
If you have a family or anyone who may fall into financial hardship if you are no longer alive, you definitely need life insurance. No one knows what the future holds since tomorrow is not promised. Life insurance helps to provide financial stability to those you leave behind in the event of your untimely death. Since most people carry debt, some more substantial than others, when you die, that debt doesn’t simply disappear.
If you are in your 20s, chances are you good that you aren’t thinking about how your death may impact your loved ones, but that is when the premiums will be the lowest. So, if you think you may get married or want to start a family, planning for their future well-being is a wise decision to make as early as possible. The older you get, the more life insurance will cost you.
Even if you aren’t married but care for aging parents or have someone who depends on you, the last thing you want to do is leave them with no way to make ends meet without you.
The hardest question to answer when buying life insurance is trying to figure out how much insurance you need. The short answer is that you need to bridge the gap between your debts and your assets. There are calculators available online that will help you come up with the amount of coverage you need.
One method for estimating how much insurance you should have is multiplying your income by 10. The only problem with that idea is that it doesn’t take into account your outstanding debt or how much money you may have set aside in savings. Not only that, it fails to take into consideration the particular needs of your family and how circumstances will change if you are no longer in the picture.
Another method that requires you to take a look at your finances is called the DIME formula. Using this estimating process, you evaluate your debt, income, mortgage and education. You need to tally your debt and any costs involved with your final expenses (funeral/burial). Then you calculate how many years your family will need support after you’re gone and multiply your income by that number. Next, you figure out how much it will cost to pay off your mortgage and how much you anticipate the costs of your children’s educations. Add up all of these totals. This will give you a decent idea of how much insurance you’ll need.
Regardless of how unpleasant it may seem to try to plan for your family’s life after your death, it is necessary and responsible to make sure you don’t create financial hardship for your loved ones.