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.
