Probably one of the best ways to start
the process of comparing life insurance
options is start with your needs.
Most people know they NEED life
insurance but haven't really spelled out
the details. There are a few
common concerns we all have so let's
take at how term life insurance
successfully address the need for life
coverage.
Okay...so you have this vague sense that
you need life coverage. Why
exactly? Well...you have a newborn
baby. That's usually a common
trigger. You make half if not most
of the family income or you're the
single parent. If something
happens, then what? Let's walk
through the most common (and some less
likely) needs.
The
single largest need for life insurance
is income replacement. If a
family's income drops for $120K to $30K
overnight, the financial situation of
the loved ones will likely spiral very
quickly. It's estimated that less
than 40% of American have an emergency
fund to handle financial issues.
Even if you have some savings, picture
how quickly it would decrease in the
above income situation. This
really is the critical need...especially
in the first 2-4 years following the
death of a loved one. It takes
time for the dust to settle and a lack
of income just kicks up more dust.
How long do you need to replace the
income? To some extent, I would
let your monthly
life insurance premium
budget dictate this
calculation...because after all, you
have to be able to afford the premium
over a long period of time. In our
term life quote tool, you can play
around with the amount and length to
find the right fit for your budgetary
needs. With small children, you
would err towards a longer length of
time (and conversely a smaller amount to
stay within your budget). Many
life insurance agents will think this is
imprudent and the life insurance needs
should dictate what you
purchase...budget be damned.
Then again, they do not have to afford
that premium over the course of the
policy. If the policy lapses due
to non-payment, what good does all that
extra coverage mean. Find the
middle ground.
Another common (almost universal) need
for life insurance is that falling under
the heading of
final expenses.
This can be expenses associated with
funeral costs, estate settlement, taxes,
debts, and perhaps resulting medical
expenses if there were some leading up
to the death. Most people forget
about this last item but in the world of
high-deductible health insurance plans,
this can quickly rack up to thousands of
dollars.
Surviving Spouse. Another life
insurance need may be to take a
surviving spouse out to a certain age or
provide an
immediate estate from which
he/she can derive income from. In
this case, the income (if properly
invested) can provide a long term source
of income.
Special Needs. This need may
result from dependents with special
needs or maybe even parents.
Medical bills, specialist, etc can be
very expensive for some people and life
insurance can account for these needs in
the event that you are no longer alive
to act as a financial guardian.
Retirement Needs. Similar to the
surviving spouse above, this will allow
a spouse to have assets to carry him/her
through retirement. This is
especially true if your savings are
inadequate at the time of retirement and
you need to work later in life.
Life
insurance, at it's core, is designed to
address the accumulated effect of
"missing income" from a large period of
time. All the needs above can be
loosely tied to this need.
Term life insurance is ideally built to
simply and effectively address this
need.
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