No one enjoys thinking about the end of their life. It is a gloomy subject, but one that unfortunately, we all have to think about sooner rather than later. If there are people that depend on you, thinking about a life insurance policy before it is too late is a necessity. In this article we will discuss who needs life insurance, what kind of insurance you need, and how much of it you should get.
The first thing to decide is if in fact you need life insurance. If you don’t have any dependents, and you have enough assets to cover the costs of dying (funeral, lawyer’s fees, etc.) then you probably won’t need life insurance. On the other hand, if you have people who are dependent on your – especially if you are their primary provider – or if you are in a significant amount of debt, then you will want life insurance to help offset those costs.
Once you’ve decided that you want to get life insurance, you need to determine the best plan for you. The biggest part of this is trying to figure out how much money your dependents are going to need. Choosing the face value of your insurance policy depends mostly on 4 things:
- Your debts – Your insurance policy will need to cover all outstanding debts, including things like mortgages, loans, and car payments. You should also add a little extra to cover interest charges.
- Income Replacement – This is probably the biggest factor towards the size of your policy. For example, if you make 50,000 a year, you’ll want a plan that replaces that, plus a little bit more (for inflation). Don’t forget to add this amount to your total debts.
- Future Obligations – If you want to pay for things like your child’s education, then you should factor this into your policy size. Leaving your loved ones money to do the things you always dreamed for them is not a bad thing to include in your policy.
- Insuring Others – Lastly, you are probably wondering if you should insure the other people in your life. For the most part, you only want to insure people who bring in money. So while losing a child would be devastating, you don’t need to insure them. On the other hand, a spouse that brings in an income should be insured.
Once you have considered all of these things, and come up with a rough estimate for how much money you’d like your policy to be for, you can begin to shop around for a provider. Knowing your number before you speak to an insurance company will allow you to make sure that you are adequately covered, and that you are neither under or over spending. While renewable term insurance will work for most people, you need to look at your own specific circumstances and see what is right for you. Only you can know what kind of plan you and your family may need. By using the 4 factors above you can have a better idea of what kind of plan to get.