Portions reprinted courtesy of The Life Foundation
Determining how much life insurance you need requires a careful examination of your current financial obligations: what would it cost to help your surviving family members meet immediate and ongoing needs like funeral costs, taxes, food, clothing, utilities, mortgage payments, etc. Also youll need to determine future financial obligations like college and retirement funding and the resources that your surviving family members could draw upon to meet those obligations such as your spouse’s income, savings and investments, other income producing assets, and any life insurance you might already own.
The difference between your financial obligations minus the resources your family has to meet those obligations is the approximate amount of additional life insurance you need.
According to LIMRA, the average person owns life insurance with a death benefit that is approximately
Check out this calculator to estimate how much life insurance youll need.
It’s impossible to say which is better because the kind of coverage that’s right for you depends on your unique circumstances and financial goals. But generally speaking, term offers the greatest coverage for the lowest initial premium and is a great solution for people that are just starting a family, especially if theyre on a tight budget. For instance, if paying for college is a major financial concern but you’re pretty sure that you won’t need life insurance coverage after the kids graduate, then it might make sense to buy a term policy that’ll get you through the college years.
Permanent insurance may make more sense if you anticipate a need for lifelong protection and like the option of accumulating tax-deferred cash values. Also, it doesnt have to be either one or the other. Oftentimes, a combination of term and permanent insurance is the right answer.
If you miss a premium payment, you typically have a 30- or 31-day grace period during which you can pay the premium with no interest charged. If you own a term policy and miss a payment, your insurance company will typically cancel the policy. If you own a permanent policy and miss a premium within the grace period, your insurance company, with your authorization, can draw from your policy’s cash value to keep the policy in force.
The main feature of a permanent policy is that it remains in force as long as you make your premium payments and the policy builds cash value a portion of your premium payment goes toward paying the cost of insurance and a portion builds cash value which is tied to an interest rate.
About Life Insurance Awareness Month
Held each September, Life Insurance Awareness Month is an industry-wide effort that is coordinated by the nonprofit Life and Health Insurance Foundation for Education (LIFE). The campaign was created in response to growing concern about the large number of Americans who lack adequate life insurance protection. For more information on life insurance, visit LIFE’s website at www.lifehappens.org