While many employers offer life insurance as one of the benefits they offer, you should consider carefully if you need supplemental insurance beyond that offered at work. If you have no dependents and you have enough assets to cover the cost of the funeral and estate fees, then insurance is an unnecessary cost for you.
Life insurance can help pay for many expenses, including medical costs, funeral expenses, taxes and other obligations such as outstanding debts and mortgage balances. It can also help cover future expenses such as college tuition or childcare costs. Here are the steps for determining how much life insurance you should get:
Calculate Your Current and Future Financial Obligations.You should include on-going mortgage payments as well as future obligations such as college expenses. Another way to calculate this number is to multiply annual earnings times the number of years left till retirement. You should also include immediate expenses, like funeral expenses and legal fees for the estate.
Total Up Existing Resources. You should include social security, investments and any life insurance that you already own. You can also include spousal income.
Determine Life Insurance Needed. You then subtract the existing resources from current and future obligations to determine the amount of life insurance needed. Remember that you may not need additional life insurance. If your dependents are reaching adult age or your other investments cover any future obligations then you do not need additional life insurance coverage.
After you've determined the amount of coverage you need, you'll next need to look into the type of policy you require. Term insurance is the most likely fit for most people. Term insurance offers just as much coverage and is cheaper than cash-value policies. Term insurance pays a set amount in the event of your death. If you don't die, the policy does not pay out. You should watch out for cash-value policies. These can be extremely popular with insurance sales professionals since they often pay a large commission.
You should look for term insurance policies with a renewable clause. The renewable clause means you'll be able to renew your policy at a set rate without undergoing a medical exam. This way if you are diagnosed with a severe illness just before the term runs out, you'll be able to renew at a competitive rate even though the insurance company will have to pay out.
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