Many people don’t think they need to get life insurance — it’s often seen as a luxury item that isn’t an absolute necessity. On the contrary, it can be a smart way to protect your family’s continued health and happiness. Simply put: if you have dependents and you don’t have life insurance or another way to replace your lost income if you die unexpectedly, your dependents could face serious and long lasting financial problems. Life insurance is one of the best ways to make sure your family is protected in this unfortunate scenario.
Just think about all of the ways you support your family and what they would do without it. For example:
- How would your family replace the income you earn? Chances are that your family depends on your income for all of their day to day needs.
- How would your family pay the bills without you? Make a list: the mortgage or rent payment, the car payment, car insurance payment, college savings contributions, medical bills and health insurance, groceries…the list goes on and on.
- How would your family pay for your burial expenses? The last thing you want to do is to have your memorial costs become a burden to your family in their time of grief. Life insurance is one of several options for paying for memorial and funeral costs.
Life Insurance and Estate Planning
Life insurance is often used as part of a complete estate plan, including your Will or Living Trust, Living Will, and Power of Attorney. Another reason people purchase life insurance is planning for estate taxes. Ownership of life insurance can be transferred into a Living Trust in order to avoid additional estate taxes on the proceeds of the life insurance, and then the life insurance proceeds can be used to pay the estate taxes on the inheritance.
Calculating How Much LIfe Insurance to Buy
How much life coverage to buy is a very personal decision, and there isn’t one calculation that covers everybody. A good process is to start by figuring out how long your family would need to replace your income, let’s say 15-20 years. Then multiply that number by the amount of your family’s annual costs, including the mortgage and other bills, your children’s current and future education expenses, health insurance costs, etc. Then add in the cost of your memorial arrangements. This will give you a good starting point, but you may want to increase it so that there’s enough money left after the bills are paid so your family can live comfortably.
Although life insurance isn’t the only way to help safeguard your dependents’ continued financial security, it can be a good option for many families. To learn more about life insurance, visit our Insurance Center.
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