Deciding whether or not you need to insure your life is a simple matter. When you’re young and carefree, you may look at life insurance as yet another outlay of cash you can do without. It’s a particularly important decision if you have a family dependent on you for income and their financial future. Having life insurance isn’t just a matter of providing for your funeral expenses. It’s much, much more subtle than that.
Life insurance is all about providing those loved ones you leave behind financial security and stability after you’re gone. If you happen to be the main wage earner in your family, take a moment to consider what would happen to your family – and how they’d cope – if they were left with a pile of bills to pay.
Say you still owe on your mortgage. The amount of money needed to cover mortgage payments might be a nightmare for your family once they’ve lost your income. And what about the raft of other bills – putting the kids through college, making sure your family lives in the style to which they’ve become accustomed – even if your children are grown.
The proceeds of a life insurance can also ease the burden of any additional debts you leave behind, debts which might require assets which you might not wish them to convert to cover mundane, daily expenses.
You start by determining how much coverage you’d be likely to need, then use research tools like our life insurance needs calculator before searching online for the best deal. You should take into account factors like how much remains on your mortgage; how much money would your partner and the household be deprived of through the loss of your earnings; how much it would take to raise your children and how much would such things as childcare impact your family if your partner was forced to return to work.
One question nearly everyone asks eventually is “should I get a life insurance policy?”
You already know that life insurance pays out a benefit when the person insured dies during the time a policy is in force. It can provide cash needed to pay for burial expenses, but it can also provide your family a financial cushion to help them get back on their feet as they adjust to life without you and your support. While you’re young and short of discretionary income, it’s a simple matter to tell yourself that life insurance is mostly for the wealthy, but the truth is that life insurance is far more critical for anyone who lacks a monetary cushion against hard times.
Here’s a list of reasons why you might need life insurance:
You have dependents
The moment you are responsible for another person in your life, you need life insurance. Whether it’s your children, a spouse or employees, if someone counts on your ability to earn an income, then life insurance is a necessity.
You owe on a mortgage or other debts
You need life insurance to pay off the remainder of your mortgage if you should die before the mortgage is paid off. If you lack some sort of insurance coverage which would pay off your mortgage when you die, it falls to your heirs to settle the debt or lose their home.
You own a business – or are a key employee – of a business
If you own a business, are a partner in a business or are a key employee of a business, a life insurance policy can help keep that concern afloat and provide your employees or partners time to replace you or dissolve the business according to your wishes. Consider that you can invest in life insurance and charge the cost of premiums off as a business expense.
While there are several types of life insurance available to you, the type that’s best for you is dependent on various factors. Say your chief concern is to ensure your family isn’t saddled with a capital and interest mortgage in the event of your death. In that case, decreasing term life may provide you with the most economical option. Decreasing term life policies mean you pay for only the amount of coverage you need.
For example, if you take out a $150,000 capital and interest mortgage on your home, that loan can be protected with a decreasing term life policy which begins with a payout of $160,000. In effect, the payout will decrease over the years as you pay down the principal of your mortgage loan.