Life insurance is a policy that pays a specified amount (death benefit) to named beneficiaries when the policyholder dies. For this coverage, the insured pays a premium at regular intervals, such as monthly. The financial payout can cover costs such as:
- End-of-life expenses
- Beneficiaries’ upkeep
- Debts owed by the deceased
- College tuition for children of the deceased
Do You Need Life Insurance?
Life insurance is a vital investment for any adult taking care of their family or financially-dependent older parents. Here are some scenarios in which you could use the policy:
- You just became a parent
- Your income covers your family’s upkeep
- You wish to leave behind a financial legacy
- You have a shared financial obligation with your spouse, such as a mortgage
Selecting the Right Life Insurance Plan
The type of life insurance plan you choose determines your coverage benefits, duration, and costs. Your main options include:
Term Life Insurance
Term life insurance is one of the most affordable options and is ideal for policyholders on a budget or are young parents. It provides coverage for a specific length of time, such as 10, 15, or 30 years. If the policyholder dies within this duration, a death benefit is paid out to their beneficiaries. It’s best to choose a term length that coincides with the decline of your financial commitments, such as after your children have completed college. You’ll be paying a fixed premium throughout the policy’s term, so your cost is protected from future dynamics like inflation.
Permanent Life Insurance
Permanent life insurance is also called whole life or universal insurance. When you choose this plan, you’re covered for your entire life. These plans typically have a death benefit and cash value that may accumulate interest or decline over time. They also allow policyholders to use the accrued interest. With lifetime protection and an interest-accruing cash account come higher premium rates. The policy’s cost can be as high as 20 times the premium of a term life insurance plan.
How to Estimate Your Life Insurance Coverage Needs
When working out your life insurance needs, your annual income is the best reference. It gives you an accurate idea of the amount of money per year your family requires to live comfortably. Then, multiply that figure by the number of years you want your loved ones protected for, such as five or ten. The product is the amount of life insurance you should purchase. It’s the financial payout that your beneficiaries will receive in the unfortunate event of your death.
You can also estimate your coverage needs in terms of your annual expenses. These can include the amount of income you spend each year on your family’s bills. In addition, include expenses on outstanding debts and money spent on your spouse, partner, or any aging parents that depend on you financially. Always go for life insurance coverage that can replace your income and financially cushion your dependents for several years.
For professional assistance in estimating your life insurance coverage needs, contact us today at Donald Weiss Insurance Services. We have the expertise to help you obtain adequate financial protection for your family on a budget!