Life lessons of life insurance
Do you need life insurance?
When you make plans, life has a way of changing them for you. Because the world has a knack for being unpredictable, life insurance is a good idea as a safety net for most people. It gives you a unique ability to protect your family’s financial future.
If you have people in your life who depend on you for their ongoing livelihood and comfort, then life insurance is probably right for you. These people are called dependents, and they include spouses, children, aging parents, and other loved ones.
If you’re single or your spouse doesn’t rely on your income for their financial independence, then you might not need life insurance right away. Your savings and investments might be enough to pay for your final costs and provide a nice cushion in the event that something happened to you. But life insurance isn’t only useful in the event of death, it offers plenty of benefits while you are still living, as well.
Choose the right type of life insurance
There are two basic types of life insurance. Your options are term life and permanent life.
Term life is the basic option that most families choose. Remember your list of dependents? With a term life policy, those dependents become beneficiaries of the policy upon your death. This way, your family will have the resources they need to pay off your debts, go to college, and start new lives.
Permanent life, also known as cash value whole life, is a little different. It’s a life insurance policy that allows you to borrow against the accumulated cash value for college or medical expenses at a low interest rate. This means you can get something out of the policy while you are still alive. Then, when you pass, your beneficiaries receive the promised funds minus any outstanding loans taken out of the policy. These policies are often more expensive but can be a smart part of your long-term financial plan.
How much life insurance do you need?
Let’s start with how much it costs. Factors that affect cost include your overall health, age, gender, occupation, and more. Things like smoking, family medical history, blood pressure, cholesterol, and how often you exercise will play a part in determining the cost of your life insurance policy.
Calculating how much life insurance you need is relatively easy. To estimate the right amount of coverage for you, start by taking your annual income and multiplying it by the number of years that you estimate your beneficiaries would need your income stream following your death. Then, add the estimated amount of your final expenses, plus whatever outstanding debts and obligations you may have. From that total, subtract your savings, investments and other assets, and you will be left with a general estimate of the amount of life insurance that you will need.
Be sure to take into account any large debts you might have, because if you owe nearly half a million on your home loan, then a $600,000 policy will not go very far. Plus, it’s important to consider the amount of money it will take to cover funeral expenses.
Start with your employer
Chances are good that you have access to free or low-cost, basic life insurance through your employer. While these policies are not always the most cost-effective, they are great for covering general needs and post-demise costs.
Get answers at First Tech Insurance Services
Call 855.855.8805 or stop by your nearby branch to chat with one of our licensed service agents. They’ll help you find the right life insurance policy to fit your needs and provide for your family when you cannot.
This is typically the period of time partners and/or dependents will need your financial support. (Ex: until college graduation, until social security benefits are available, etc.)
These are funeral and burial costs. In 2018 the average North American traditional funeral and burial costs ranged between $7,000 and $10,000.
These may include outstanding liens, medical bills, etc.
This is any cash savings.
This includes retirement funds such as the vested portion of a 401(K), IRAs, or any other holdings (stocks, mutual funds, precious metals, etc.)
This could include the value of recreational property, additional vehicles, valuable art or other items. Note: Only add a value here if the plan is to sell these assets upon your death, essentially adding cash to your savings.