Life Insurance

Everyone in the United States has at least auto insurance to protect and make whole both parties in an accident. Those who own a home have insurance to cover varies forms of damage such as fire and flood.

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Life Insurance is an important and often overlooked aspect of our financial lives.

No one likes to think of their own demise which is one reason why many are under insured and under invested. We will all die someday and some will die unexpectedly which is why life insurance is such a valuable tool to protect those you love.

At death the proceeds from life insurance can be used by those who survive you to continue living a comfortable life style.

Determine the amount of life insurance you need:

1. First think about the amount of money to cover short term needs.
2. Next look at the long term financial needs.
3. Look at the current family assets.
4. Life insurance amount should cover the shortfall.

Short Term Needs

loan balances

credit balances

mortgages (first mortgage, second mortgage, line of credit)

funeral and final medical expenses

estate settlement including taxes due

large enough emergency fund to provide at least 6 months of living expenses

Long Term Needs

enough assets to provide a future income stream to maintain current life style.

college expenses

if possible enough to pay off all mortgages

if your spouse will need to work to cover some future expenses add child care costs to the life insurance amount

Current Financial Resources

remaining earned income of survivors

government financial support (United States has Social Security for dependents and spouses)

Social Security when spouse becomes of Retirement Age

any other survivor benefit such as pension plan.

Short Fall

Now that you know an estimated income after death and potential expenses. You will be able to determine a shortfall that can be covered by Life Insurance. Personally I would have enough life insurance to at least pay off all debt, expected college expense and death related expenses. Then if more coverage is affordable I will try to provide enough assets to cover the loss in family income.

Life insurance industry exists to help family manage this risk. Each policy holder basically joins a pool of shared financial risk to protect our families from the unexpected. To gain this protection you pay an insurance company a small premium each year in exchange for the promise of a death benefit for your survivors.

Conclusion

The ideal amount of life insurance covers all of your family financial needs through retirement and beyond. This can be quite expensive especially for younger families just starting out. In the case that you cannot afford full coverage you will have to decide an appropriate amount to get your family through the first year of transition. This could be covering all death expenses, emergency fund and enough assets to pay for college.

There are many types of insurance that can be covered in another article such as term life verse whole life. However you must first know the amount you need and the yearly premium you can afford before choosing the specific type of insurance.

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Disclosure: I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. The information provided should NOT be considered advice. The topics discussed are risky and have the potential to lose a substantial amount. I am not an investment professional and therefore do not offer individual financial advice. Please do your own research before investing.

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