Some people equate life insurance with tragedy and death. Actually, life insurance is for the living. Without it, the sudden disappearance of a key support person could leave a family without the resources needed to maintain their lifestyle, or even preserve their home.
Not long ago, professionals recommended that families carry a life insurance policy with a death benefit of 10 times their annual household income. Today, however, in light of increasing housing prices in many parts of the country, rising college costs and low interest rates for most counselors now recommend up to 20 times their household income.
Unfortunately, most American families are insurance-insufficient. The gap between what households have and what they need is almost $ 320,000, which according to LIMRA’s study.
An Important PieceÂ of Your Financial Plan
Life insurance is an important componentÂ of your financial plan, for severalÂ reasons:
1. Income replacement.
For most people, their most valuable economic asset is their ability to earn a living. If you have dependents, then you must consider what would happen to them if they could no longer rely on your income. A life insurance policy can also help supplement retirement income, which can be especially useful if the benefits of your spouse or partner will actually be reduced after your death.
2. Covers outstanding debts and long-term obligations.
Without life insurance, your loved ones must assume burial costs, credit card debt and medical expenses not covered by health insurance using funds out of pocket. Policy death benefit can also be used to pay a mortgage, supplement retirement savings, or college tuition fund.
3. Can be used for estate planning.
The benefits of a life insurance policy can be earmarked to pay state taxes so that your heirs will not have to liquidate other assets to do so.
4. It can be used to support a charity of your choice.
If you have a favorite charity, you can designate some, or all of the proceeds of your life insurance to go to this organization.
Remember that an agent or consultant can help you determine your life insurance needs and find something that works within your budget. Or you could do it yourself.
In general, if youre single with no dependents, you probably don’t need life insurance. There are some who suggest that this is the best time to get life insurance because your premiums will be low, but honestly, if you have no dependents, then why bother?
How much life insurance you’ll need obviously depends on individual circumstances, but you can definitely determine the proper amount yourself. Â Check out Bankrate’s retirement calculator.