Life insurance can offer you and your loved ones some peace of mind in knowing that they will have some financial protection in the event of your death. While life insurance can be essential for some people, not everyone needs it. But if you do need it, it can be confusing to know how much coverage you need and what type of policy is best for you. Let’s quickly run through some life insurance basics.
Do I need life insurance?
Your family and financial situation determine whether or not you need life insurance or not. If you are single, for example, have no dependents, and have enough assets to cover your debts and other death-related expenses (such as funeral costs), then you probably don’t need life insurance. Even if you have dependents, if you have enough assets to sufficiently provide for them after your death and are not in debt, it may not be necessary. Most people, however, do need life insurance, especially if you are the primary provider for your family or have more debt than assets. Life insurance can help ensure that your family can continue paying their living expenses, cover funeral expenses, and that they don’t have to pay off your debts.
What type of policy should I get?
Life insurance policies generally fall into two main categories: permanent and term. Permanent life policies cover you for your entire life as long as you keep up with the premium payments. While these policies tend to come with higher premiums, they may also come with an investment option which lets you build cash value by investing your premiums into the market.
Whole and universal are both types of permanent life insurance. Whole life insurance offers consistent premiums and guaranteed cash value accumulation, while universal policies offer more flexible premiums and death benefits.
Term insurance covers you for a set period of time (such as 20 or 30 years). These policies tend to have lower premiums, but you may have to renew them after their expiration date, and you may be required to pass a medical exam to renew.
Talk to your trusted insurance advisor to see which type of policy best fits your needs.
Note: If you are interested in purchasing life insurance to protect a business from the impacts of the death of an owner, partner, or key executive or employee, talk to your insurance provider about Key Person Insurance (aka Keyman Insurance or Business Life Insurance).
How much life insurance do I need?
The minimum amount of life insurance coverage needed varies widely from person to person and is dependent on a number of factors. If you want to life insurance to pay off your outstanding debts (such as student loans, mortgages, car loans, etc.), you should get a policy with a face value that is enough to pay off all those debts in full (plus any interest charges).
If you need a policy that replaces your annual income to help support your family, there are several different ways to calculate how much you will need. Some companies advise that 6 – 10X your annual salary will suffice, others say to multiply the number of years until you retire by your annual salary instead. There is also a standard of living method that takes how much money your dependents would need a year to maintain their standard of living, and multiply that by 20. Talk to your insurance advisor to determine how much coverage you need to care for your family, without spending more than you should on premiums.
Valley Insurance Services can help you find the right life insurance policy for the right amount and the right reasons. Visit our website or get in touch with one of our expert insurance advisors today!