Buying life insurance is an area that most adults haven’t considered until they become parents or find themselves with a dependent of some kind – a disabled family member or parent who relies on them. When you’re responsible only for yourself, life insurance isn’t especially meaningful, but when you’re putting your whole world to bed every night with a story and a kiss, the costs and expenses of the unknown future begin to weigh heavily on your mind.
Life Insurance Basics
There are two types of life insurance. The first is group-life insurance which is a form of investment. You buy into a life insurance policy and the money you put in will be released to your estate and dependents upon your death assuming you have maintained the policy. The other form of life insurance is term insurance. In term life insurance, you pay a monthly fee for coverage without any long-term benefit. You pay for a particular term for a certain amount, and when that time is up, your payments stop and your coverage ends.
Life Insurance Costs
The cost of life insurance rises with the amount of insurance you’re buying. A policy for $20,000 will cost far less than a policy for $1,000,000. Term life insurance is less expensive than group life insurance, although each family should determine which form of insurance has the most value for your family. The buy-in of group life insurance might be appealing over the temporary nature of term, for example.
Calculating Life Insurance Coverage
To determine how much life insurance you actually need, you’ll want to consider the following.
How much life insurance do you already have? Many employers offer life insurance to their employees as part of the benefit package. If you have life insurance through your employer, you’ll need less through an insurance company. If you have only a nominal amount, it will have little effect in the coverage amount you’re buying now.
How much do you make? Ideally, your life insurance should cover your salary for a substantial number of years to make it easier on your surviving partner to manage the home and raise children without you. If your partner works, this can be taken into consideration. If she doesn’t work, you’ll need to consider that as well.
How old are your children? If you are obtaining life insurance to be sure your children are protected, as many parents do, the age of your children make a difference. Do you want to be covered until they are eighteen? Twenty-one? Thirty-five? Are you trying to include the costs of college? Set the term of the insurance policy to match this desire.
How much do you owe? A lump sum payment from your life insurance should be enough to cover your salary for a bit and to pay off the debts you’ve left behind. You’ll need to decide if you want your insurance to pay off the mortgage and vehicle to make life easier on a surviving partner or if you only want the credit cards taken care of.
Tally Up the Coverage
In most cases, the amount of coverage you actually need is higher than what you anticipated. Decide on an amount that makes sense for your desires and other conditions and set up a plan. Then, you can rest at night knowing your family is protected financially, no matter what.
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