By Ronald Williford
It’s a question most insurance professionals hear many times every day – How much life insurance do I really need?
The main purpose of life insurance is to provide financial security for your family. It helps to ensure that when you die your family will have the financial resources it needs to provide for your spouse, children, an elderly parent or some other dependent. Life insurance also may be used to meet a variety of long-term financial planning goals. It can help provide educational funds for your children or funds for your own retirement.
So How Much is Enough?
There are no hard and fast rules for determining how much life insurance is enough, because no two families have exactly the same needs. You may be single, supporting no one but yourself. Or, you may be single, supporting an elderly father or mother. You may have several children, but also two incomes and considerable net worth. Or, you may have several children, be dependent on one income and have few back-up resources.
Whatever your situation, if you are providing financial support for people who are depending on you, you probably need life insurance. However, there are several things to keep in mind when you buy life insurance, since the proceeds can be used in a variety of situations. For example, the proceeds can:
- Provide ready cash for final These expenses could include funeral costs, medical expenses, probate fees and estate taxes
- Pay off outstanding debts – not only hospital bills, for example, but a mortgage or an auto loan.
- Provide replacement income in amounts necessary to cover:
- A readjustment period of two or three years after your Even if you are a two-income family, it takes time to adjust to one paycheck instead of two. If you were the sole breadwinner, with young children at home, your spouse’s need for a readjustment period is obvious
- The period while children under age 18 are still at home and dependent; also, the college years
- The years between the time the youngest child becomes independent and the time the surviving spouse reaches retirement age
- The period after the survivor retires and receives Social Security or a pension
In general, determining how much life insurance you need means deducting the sum total of the income that would be lost upon the insured’s death from the sum total of your family’s ongoing financial need.
It also means calculating the impact of inflation and building in enough “extra” to counteract inflation’s effects.
It may seem complicated, but it’s an exercise well worth doing. It’s also one you don’t have to tackle alone. A life insurance agent/producer can help determine how much life insurance your family will need over time, based on the extent of your financial responsibilities and the kinds and amounts of your other resources.
Take the time today to help ensure your family’s financial security. Talk to your insurance agent/producer.
Ronald Williford is the President/Founder of Philadelphia Financial Consultants,LLC.