How Much Life Insurance Do You Need?

Amazing but true:  buying life insurance is one of the most important moves you can make to solidify your personal finances, yet it is also one of the most complicated.  It’s extremely difficult to compare life insurance policies.  On top of that, life insurance has its own jargon that is enough to make anyone head for the aspirin bottle.  It doesn’t help, of course, that buying life insurance means coming to terms with your own mortality.  Great.

Nevertheless, if you have dependents but your assets wouldn’t provide for them adequately after you die, you need life insurance.  By contrast, if you’re single and have no dependents, you probably don’t need to buy life insurance since no one is relying on your financial support.  A life insurance agent may argue that you should buy a life insurance policy to cover the cost of burial when you die.  But you should have enough in savings for this expense.

How much life insurance do you need?  The simple answer:  Enough to sustain your family’s present standard of living and let them meet their financial goals in the event that you’re no longer around.  If you’re married and the only breadwinner, your life policy’s death benefit –the face amount of the policy collected by your beneficiaries after you die –together with your other assets should be large enough to deliver lifetime income for your spouse.  If you have kids, you’ll need to provide income for them, too, until they leave home, as well as a tuition fund if you intend to pay their way through college.  If both you and your spouse work and earn income that the family relies on, both of you need coverage.

But putting a dollar figure on the exact amount you need is trickier than you may think.  The rule of thumb that says you should insure yourself for five to seven times your annual gross income is far too simplistic.  Instead, meet with a life insurance agent or a financial planner who can do the calculations to match your situation.  Many personal finance software packages can also handle the calculations right on your personal computer –with no salesman in the room!

Some Things To Consider When Buying Insurance

Despite the fact that auto, home and health insurance rates are on the rise, there are always ways to save money on these necessities with a little ingenuity. In our free enterprise economic system, you can always find a better deal on anything by comparison shopping. The trick is to know, down to the last detail, the insurance coverage you are comparing.

Auto Insurance
Your agent will determine your auto insurance rates by assessing your risk and comparing it in an insurance tier system which considers your age, gender, profession, type of automobile, credit rating, driving record, and other factors. Now, some of these factors, like age and gender are not subject to manipulation, while some of the others are.

Credit scores are used by insurers to predict how responsible a person you are. If you have a habit of being late on your credit card payments, insurers can raise your rates. Improve your credit report by repairing any errors and stay on time paying your bills. Everyone knows blemishes on your driving record can cause your insurance rates to go up, but you can also do something about that. Aside from criminal offenses, minor traffic violations can be erased by completing a Driver Education Course.

By raising your deductible, you can also lower your rate. By installing theft deterrents like the LoJack Theft Recovery System, some insurers will discount your rates by up to 35%. Buying a previously owned vehicle instead of a new car is another big money saver.

Home Insurance
Homeowners are acutely aware of the importance of keeping within a budget and saving here and there. Start off with the no-brainers first, like comparison shopping and improving your credit score. Raising your deductible by $500 can save you 12% on your premiums. Bundle your home and car insurance for a discount. Install dead bolt locks, smoke detectors, and burglar alarms. Make payments electronically to save a $5 per payment handling fee. Check your home insurance policy yearly to change your coverage if you add or remove valuable assets from your home.

Health Insurance
Those of us with an active health insurance policy, either from our employers, or purchased outright, can save money on health insurance rates by raising the deductible and also asking for generic rather than brand name prescriptions. During the open enrollment period which occurs once a year, insurers allow members to make changes to their coverage. This is the only time you can remove a dependent who is no longer using your policy or remove other coverage that can save you on your premium

As more employers are cutting back on benefits they offer new hires, group health insurance is no longer something that can be counted on. If you do not receive health insurance benefits, one way to obtain cheap health insurance is through membership in an association or club which has procured health insurance at a reduced rate for its members. AARP (American Association of Retired Persons) offers health insurance discounts for its members. If you are a member of a trade association, such as National Association for the Self-Employed you can sign up for coverage through them.

What's The Difference Between Term And Whole life Insurance

I’ve covered the basics of health insurance and homeowner’s/renter’s insurance. This week, I’m going to briefly focus on perhaps the most dreaded of all insurance policies: Life insurance.

It’s tough to think about because it speaks to our deepest fears about the uncertain future. You are purchasing life insurance for one reason: to make sure your family is financially covered in the event that you are no longer there to provide for them. Or, more bluntly, in case you die, they won’t have too much extra financial stress.

Yeesh, right? Who wants to think about death on a Wednesday? But you have to.

Get educated. Do the research to know the different types of life insurance that’s offered.

Term Life Insurance

Term life insurance is exactly what it sounds like. It’s insurance that covers you for a specific amount of time (the term). You pay premiums on this policy for the entire term. Once the term runs out, you can apply for more insurance. Yet, if your health is poor you might have to pay higher premiums–if you are accepted in the first place. Generally speaking, term insurance covers you for a pre-determined amount of time. This is where you have to do the research and the work. Do you want to be covered until the children are up and out of the house? Out of college? Do you want to be covered until your retired? You have to figure out your financial needs. Once the term ends, however, your loved ones will not receive benefits if you die.

Whole Life Insurance

Unlike term insurance, whole life insurance covers you for your whole life at a fixed premium that is usually higher than the premium offered for term life insurance. With whole insurance, you pay a premium. That money goes two places. Some of it is applied towards coverage with benefits similar to term insurance. The other portion of the money goes into an interest bearing account. You can withdraw or borrow against this account. Some experts think that this is not money well-spent, as you would do better for yourself financially to focus your resources on investments and retirement accounts. (Also, universal and variable life insurance are types of whole life insurance.)

A Final Note

In researching this topic, experts may have had slight disagreements on what type of insurance to buy. What was nearly unanimously agreed upon was this: Don’t take out life insurance policies on your children. That money could be better spent towards the family’s future. But, again, do your research.