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Life Insurance Needs

 

Probably one of the best ways to start the process of comparing life insurance options is start with your needs. Most people know they NEED life insurance but haven’t really spelled out the details. There are a few common concerns we all have so let’s take at how term life insurance successfully address the need for life coverage.

Okay…so you have this vague sense that you need life coverage. Why exactly? Well…you have a newborn baby. That’s usually a common trigger. You make half if not most of the family income or you’re the single parent. If something happens, then what? Let’s walk through the most common (and some less likely) needs.

The single largest need for life insurance is income replacement. If a family’s income drops for $120K to $30K overnight, the financial situation of the loved ones will likely spiral very quickly. It’s estimated that less than 40% of American have an emergency fund to handle financial issues. Even if you have some savings, picture how quickly it would decrease in the above income situation. This really is the critical need…especially in the first 2-4 years following the death of a loved one. It takes time for the dust to settle and a lack of income just kicks up more dust. How long do you need to replace the income? To some extent, I would let your monthly life insurance premium budget dictate this calculation…because after all, you have to be able to afford the premium over a long period of time. In our term life quote tool, you can play around with the amount and length to find the right fit for your budgetary needs. With small children, you would err towards a longer length of time (and conversely a smaller amount to stay within your budget). Many life insurance agents will think this is imprudent and the life insurance needs should dictate what you purchase…budget be damned. Then again, they do not have to afford that premium over the course of the policy. If the policy lapses due to non-payment, what good does all that extra coverage mean. Find the middle ground.

Another common (almost universal) need for life insurance is that falling under the heading of final expenses. This can be expenses associated with funeral costs, estate settlement, taxes, debts, and perhaps resulting medical expenses if there were some leading up to the death. Most people forget about this last item but in the world of high-deductible health insurance plans, this can quickly rack up to thousands of dollars.

Surviving Spouse. Another life insurance need may be to take a surviving spouse out to a certain age or provide an immediate estate from which he/she can derive income from. In this case, the income (if properly invested) can provide a long term source of income.

Special Needs. This need may result from dependents with special needs or maybe even parents. Medical bills, specialist, etc can be very expensive for some people and life insurance can account for these needs in the event that you are no longer alive to act as a financial guardian.

Retirement Needs. Similar to the surviving spouse above, this will allow a spouse to have assets to carry him/her through retirement. This is especially true if your savings are inadequate at the time of retirement and you need to work later in life.

Life insurance, at it’s core, is designed to address the accumulated effect of “missing income” from a large period of time. All the needs above can be loosely tied to this need. Term life insurance is ideally built to simply and effectively address this need.