The Importance of Life Insurance

Do You Really Need Life Insurance

An essential part of financial planning is creating provisions for your family and loved ones following your death. Life insurance can ensure financial security to those who mean the most to you, such as your spouse, children and dependent parents. A carefully executed life insurance policy can help prepare for life's uncertainties and give peace of mind knowing that the future of those who rely on you is secure.

Life insurance pays for immediate expenses: Bills can start accumulating fast in the event of a death. Life insurance can be used to pay for immediate expenses, such as funeral services, unsettled hospital and medical bills, mortgage payments, business commitments and meeting college expenses for children.

It's a cash resource: Life insurance gives access to cash to pay for grocery bills and other daily expenses. It also helps secure your estate by providing tax-free cash to pay estate and other obligations.

Your family's standard of living can be maintained: With the right coverage, your family's lifestyle and standard of living can be sustained, adding much needed normalcy during a difficult time.

You have a wide range of options: There are two basic types of life insurance: Term life and whole life. Term life policies offer death benefits, so if you die, you will get money back, but if you live past the pre-determined length of the policy, you get no benefits. Whole life or permanent insurance is more expensive, but these policies are open-ended and also accumulate a cash value that the policyholder can earn dividends and borrow against—or cash-in upon surrendering the policy.

Customize your policy and coverage: If you have dependent children, a spouse and parents to care for, you'd want a policy that would protect them after death. Typically, policies are opened for the breadwinner of the family, but a stay-at-home spouse's contributions are often overlooked. You might consider a policy to cover childcare, carpooling and household chore expenses in the event of a stay-at-home spouse's death. On the flip side, as you get older and children or parents are no longer dependent on you for income, you can reduce your coverage or drop it entirely.

Adequate coverage makes a difference: An old school rule of thumb is that your life insurance policy equals five to ten times your annual income. Nowadays, advisors will look at the number of dependents you have, how long they will be dependent upon you, and the lifestyle they expect to live after your death. It's not a simple equation, but in general, you will need more coverage than a typical plan offered by an employer, which usually totals one or two years of your gross salary.

You can improve your credit rating: A life insurance policy is considered a financial asset and may increase your credit score, which could be beneficial when trying to obtain medical insurance or a home or business loan.

Life insurance may be exempt from bankruptcy: Most life insurance plans will not be affected by bankruptcy and will remain intact if you claim bankruptcy. However, you'll need to confer with a bankruptcy expert, as each case is unique.

Life insurance is not a simple product: It's wise to talk to an expert who can walk you through the pros and cons of available plans and help choose coverage that works best for your individual situation, now and in the future. Western offers insurance services and free consultations.

None of us know when we’ll pass away. It could be today, tomorrow, or 50 years into the future, but it will happen eventually. Life insurance protects your heirs from the unknown and helps them through an otherwise difficult time of loss.

How Much Life Insurance Do You Really Need?

Any amount of life insurance will help your family, so get what you can afford now and increase the amount later when you can. Affordable life insurance is the amount you really need to protect your family from financial disaster. So to find affordable insurance you need to decide:

1.    How much would funeral costs be?

Look into your options and make your requests clear to your family so that they won't be driven by guilt into spending more.

2.    What debts would need to be paid off?

Think about car, mortgage, schooling, and credit cards.

3.    What income would be available?

Think about how much a spouse does or could make if working full-time. If you would not want your spouse to work because of small children, then think about how much income replacement would be required.

4.    How long would that income need to be available?

This depends on whether you would want to replace income for a period of time (say, until small children are all in school), or whether you would want replacement income for your spouse's lifetime.

5.    What about health insurance?

If your spouse is not working, or if your spouse's work does not provide health, dental, vision and other benefits, you might want to include that in your life insurance amount.

6.    What about costs for college?

If you want to provide a college education for your children, you might want to include that in the amount of life insurance you buy.

7.    Other costs?

Hopefully, this list will help you think through your own special situation. There may be other expenses your family will face that you need to consider. For example, if you own a family business, you might want to provide money to make sure that can be continued or make provisions for how that could be sold.