Homeowners insurance, car insurance, health insurance – there are many way we can protect ourselves and our property. But for many people, life insurance is in a different category. For one thing, no one really wants to think about their own demise – but more than that, many people don’t really understand when a life insurance policy is appropriate.If you are wondering if you need a life insurance policy, the short answer is “it depends”.
First we should talk about those who are self-insured, because they are the least likely to need or purchase a life insurance policy. Those who are considered self-insured have enough money to pay for all final expenses; but more importantly to financially support their dependents for the long-term. Self-insurance usually means that an individual is completely debt-free, or has enough cash in liquid accounts to pay off all their debt. If an individual will leave his or her family with debt, a life insurance policy is a prudent decision.
Self-insurance also assumes that the family is left enough money to live for a minimum of 10 years; although a younger family may require up to 30 years. If you figure out monthly expenses and extrapolate out decades, you realize that you need a significant amount of cash set aside in order to be secure. Therefore a life insurance policy may be the best way to care for your family should something unexpected happen.
Choosing a Whole Life or Term Life Insurance Policy
A whole life insurance policy covers you throughout your entire life, up until 120 years of age. By contrast, term life policies have a set term, typically 20 years.
Term life insurance policies are more affordable than whole life, and provide the holder with enough time to become self-insured by saving money and paying off debt. Most financial experts agree that the cost savings associated with term life are significant enough to make term life insurance the smarter money choice.
How Much Life Insurance Is Enough?
Start with your annual income: Insurance professionals recommend that you purchase a life insurance policy which is at least 10 times your annual salary. For instance, if you make $75,000 per year, then you should have at least $750,000 in life insurance.
Add in your debt: For those who have mortgages, car loans, and credit cards, more coverage should be added to the life insurance policy in order to cover those obligations. Therefore, if your total debt is $200,000 (including your home) and you make that same $75,000 per year, you should have a life insurance policy worth $950,000.
Do you have children? Because one of the primary reasons to have life insurance is to care for the needs of your spouse and children, you may choose to make sure that your children’s major life events are covered as well. In addition to their basic needs, which are covered by the annual income calculation, you’ll want to figure in childcare (if applicable), college, and weddings.
Purchasing Your Policy
As with any insurance coverage, policies and premiums can vary significantly. You should work with an insurance agent who has access to several companies in order to compare coverages and make the best choice for you. The team at Anderson & Associates Insurance Group have been helping Sarasota, Bradenton and Parrish residents to find the most appropriate insurance coverage for decades. Whether you need home insurance, business insurance, health insurance or life insurance – call us today. We value our connections to the community and appreciate your trust and confidence.
