Life insurance is a topic that can create a lot of discomfort for people, and a lot of questions. Why does our family need life insurance? Who should be insured? How much do we need? These are all great questions, and we will try to look at them each in turn.
Why does my family need life insurance?
It is a great question. Most of us buy life insurance hoping we never get to use it. It is one of those subjects that make many folks nervous, and so they avoid even contemplating the need. In some peoples thinking, life insurance is like a Will or long term care insurance, we just don’t like to look at reality.
So ask yourself, do I know anyone that is 150 years old? Of course not, and that tells us that we will someday face our final hour. Life insurance is not for the one that passes on, but for those we care about that are left behind. This is a tough topic to grapple with, but one you have to deal with as a responsible adult.
Who should be insured?
To answer this question we simply think about a few things:
If any family member passes on, what financial impacts or burdens will their passing have those remaining?
- Final Expenses
- Loss of income—Short term- First 5 years
- Cost of child care and all work contributed by a stay-at-home parent. Much of this will be hired out at significant expense. (This number may equal or exceed the primary bread winner.)
- Loss of future income because retirement accounts and 401k accounts might be suspended at current levels.
- Lower Social Security benefits in retirement for the remaining spouse.
Please understand that we recognize money will not take the devastating loss away from the family that loses a loved one. Simply stated life Insurance is not the total answer, but the lack of funds at a critical time in a family’s life, is avoidable.
How much life insurance do I need?
To answer this we need to look at how the family’s finances are at the present time. Families with high debt load need to think in terms of the higher multiple. We recommended for most families to have 6-12 times the current income of the individual that is being insured, so a person that has a take home pay of $40,000 would need $240,000 to $480,000.
The reason for life insurance in the first place is to help the family that remains to cope financially for a number of years after losing their loved one. That means that having adequate coverage is important. Additionally, the best time to buy life insurance is when you are younger. Your least expensive rates will come while you are in good physical condition, and it certainly helps if you choose a healthy lifestyle.
For more information on life insurance check back with us at www.themoneycoaches.com.