When Should You Consider Getting Life Insurance?
If you have dependents that need financial support if you pass away, then you should get life insurance. Even if you are a stay at home parent, you should consider purchasing life insurance. Life insurance should not be considered an investment.
How much life insurance coverage should you get?
This will vary person to person. I used MSN’s Life Insurance Needs Estimator to get an amount that would fit for our circumstances. I entered some data and was given the ballpark figure of $100,000. Please use MSN’s helpful tool to get a ballpark figure for yourself.
Some questions you should ask yourself:
- How many years before you retire?
- Are you financially responsible for anyone other than yourself?
- In the event of your death, how much annual income would your spouse or partner be able to provide to compensate for the loss of yours?
- What is the approximate balance owed on your mortgage?
Deciding on Which Type of Life Insurance
What’s the difference between term and whole life insurance? Term life insurance is insurance that pays the face value of the policy to the beneficiary when the insured dies. Term insurance can be for a set amount of years (typically up to 30 years).
Whole life insurance, on the other hand, involves investments that can increase in cash value. Some people, including a boss if mine, have mentioned borrowing against their whole life insurance policy. When you die, your family also receives the face value of the policy, not the money earned.
While term life insurance can be a smart choice if you choose to invest the savings, a reader made the following observation:
In all my years selling life insurance, I have not seen one person who purchased term with the idea of banking the difference between term and whole life continue their savings program longer than a year.
It’s a great idea, in theory, but you’re bucking up against human nature to spend money if it’s available. I do know many people who, in this recent financial debacle, find comfort in the fact that their whole life policies were unaffected and remain the best “investment” they have today.
I think the reader has a point, but there is a solution to that. Automate the money saved into your investments.
If you have life insurance, how much coverage do you have? How did you determine the amount?
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