There are
two basic and necessary reasons to buy life insurance.
You
owe someone or You
love someone.
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.
