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Britt Erica Tunick is an award winning financial journalist who has spent the past 17 years writing about virtually every aspect of finance. She has mastered the art of boiling down complicated financial topics for readers to understand. |
Take all factors into consideration when determining how much life insurance you need. Know the Basics When Choosing Life Insurance By Britt Erica Tunick Nobody likes to think about dying, so it is no surprise that few people have a handle on how much life insurance they should purchase in preparation for their ultimate demise. Nonetheless, life insurance is an unavoidable necessity and is something anyone with a family or any type of assets should have. Determining how much life insurance you need, however, isn�t necessarily a straight forward process. Policies can be as simple or as complicated as each individual holder desires. Still, there are a few things everyone should keep in mind. Life insurance is essentially a financial security blanket for your family in the event of your death. The purpose of life insurance is to ensure that those who survive you are not left with financial problems because of your absence. So, with that in mind, the first thing anyone considering life insurance should do is to determine their current living costs, what percentage of that overall amount would disappear if they were gone and whether or not they have assets that could be liquidated to offset some of those costs before insurance. Beyond immediate concerns such as the cost of a funeral and burial for the policy holder, basic life insurance should cover any debts that individual would leave behind � everything from student and car loans, to mortgages and credit card debt, and should provide ongoing aid for a set period of time. In the case of married couples where both partners work, the payout on a life insurance policy doesn�t necessarily need to cover the entirety of the couple�s mortgage or to go on for 20 years. Instead, the goal should be to ensure that the surviving individual is left in a position where they could comfortably continue paying their debt along with their living expenses. To determine the amount of insurance needed to ensure that survivors continue receiving payments equivalent to the amount a policy holder earns, couples should start by figuring out of how much each person brings home after taxes. Of course, in many cases identifying the amount an individual should be insured for isn�t as simple as looking at their salary. When it comes to stay-at-home parents, couples should be careful not to assume the non-working individual�s financial contribution is any less significant simply because of their lack of a paycheck. Carrying less insurance on that individual may seem the easiest way to cut down on insurance costs, but it may not be the wisest choice. The loss of a stay-at-home parent creates unique financial issues for families, often meaning the need to begin paying for everything they previously saved money on because of that person remaining home � from childcare, to the simplest things such as the need for pre-prepared foods and laundry. Children also complicate the process of deciding how much life insurance a family needs. Couples should take the time to discuss whether life insurance policies should factor in the cost of college educations and, if so, whether they plan to cover the costs of state schools or private � often two drastically different costs. And let�s not forget about retirement needs. If retirement savings such as 401Ks aren�t sufficient to carry a spouse through their twilight years, it is wise to factor such needs into the long-term payouts a life insurance policy will make. In an environment where layoffs are all too frequent and individuals in the 65 year and older range are finding it increasingly difficult, if not impossible, to find new jobs, it is crucial to plan for the future. Similarly, illnesses can also take a harsh toll on family or individual savings, rapidly drying up funds or making it impossible to get healthcare coverage. With so many factors playing into life insurance, most of the major insurance providers have created online calculators on their websites where individuals can input key information about their lifestyles and monetary needs to get a basic idea of how much life insurance they should purchase. One such calculator is available through LIFE, the Life and Health Insurance Foundation for Education �a nonprofit established to help educate individuals about the benefit of insurance. LIFE�s �Life Insurance Needs Calculator� can be accessed at: http://www.lifehappens.org/life-insurance-needs-calculator/. But don�t rule out a one-on-one meeting with an insurance broker, especially one who is also a licensed financial advisor. Such in person meetings can often be the wisest choice, as a knowledgeable broker can help fine tune a policy best suited to your individual needs and help identify areas where paying for coverage may not make the most sense for you. |
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