Will your family suffer financially if you die?
Truth is, it’s not true that everyone needs life insurance. Bill Gates probably doesn’t care a whit about insurance, since he’s the richest guy on the planet. OK so you’re not Bill Gates, but if your home is all paid for, all your kids are well off after graduating from college, and you have enough money stashed way to help take care of your spouse when you’re gone, then life insurance may be irrelevant for you.
On the other hand, if someone (whether your kids, your spouse, or even your favorite charity) will take a financial hit because you’re dead, then life insurance makes more sense. Now the only thing left is to figure out the right life insurance policy for you.
Figuring Out the Cover You Need
You have to know just how much money your benefactors should be able to claim when you pass away, and that money should be reserved for crucial items.
First off, you need to figure out how much money you owe. Factor in your mortgage, your credit card balance, any student loans and car loans, as well as any personal loans. Then you need to think about monthly expenses for your family and dependents, and this may include future college plans for your kids. Then you need to include the cost of your funeral. Get the total cost of your expenses.
Next you have to check what kind of cover you already have. For example, your company may have a benefits package for your dependents if you die while you’re an employee. This may be a lump sum that’s equal to say, 10X your annual salary.
Subtract the cover you have from the expenses, and that’s the amount of cover you may need.
Fitting the Premiums in your Budget
The other main factor in choosing the right life insurance policy is the cost of your premiums. If they’re too high, then there’s too much risk that sooner or later you won’t be able to pay the premiums. The premiums should be low enough that you can pay back your credit card debts within your budget.
The point of life insurance isn’t to set up your family to live like royalty when you pass away. The point is to make help them get through the financial difficulty of losing you, at least for the next 5 to 10 years. This is the reason why some experts believe that your coverage should be about equal to what you would earn in the next 7 years.
Different Types of Insurance
Here are some common types of insurance which are ideal for particular situations:
Find a balance between the cover you need and the premiums you can afford. If you have people depending on you, a life insurance policy makes sure that they have the money they need even if you’re gone.