Many feel they have “enough” insurance. Often sited is company provided insurance that provides coverage of up to 2-3 times your salary. Many people are shorted sited in this regard, not taking into account the need to maintain the lifestyle of family member once you are gone. The true benefit and purpose of life insurance is as a wage replacement. In other words to replace the loss of your wages or financial household contribution until children reach the age of majority or a spouse remarries or reaches retirement age. A typical scenario would be as follows: An individual making a salary of $50,000 per year with an 8 year old child. This person would need a minimum of $500,000 in insurance based on a $50,000 salary over the next 10 years (18 is when the child reaches the age of majority)
Who needs insurance?
Those wanting to leave money to family, purchase a business on your behalf or leave money your favorite charities need to consider insurance. Anyone with dependents, human or otherwise, definitely should have life insurance. People not needing insurance include those who have raised and educated children now living independently, folks who have accumulated sufficient assets to support a surviving spouse and the single elderly population.
There are two basic types of life policies:
Term life is insurance which provides coverage at a fixed rate of payments for a fixed period of time. If the insured dies during the term, the death benefit will be paid to the beneficiary. Term life insurance is perhaps the simplest form of life insurance. It provides temporary life insurance protection for those on a limited budget. Large amounts can be purchased for low monthly premiums. It is designed primarily for things such as coverage to pay off loans, or providing extra protection during child-raising years. Most term insurance is issued in 5, 10, 20, and 30 year periods.
Whole life is an insurance policy that remains in force for life of the insured. The payout is guaranteed at the end of the policy (assuming the policy is kept current). These policies often accrue cash value which can be withdrawn and are ultimately deducted from the death benefit.
Cost or health issues can be contributing factors to those being uninsured or underinsured. Term life which is the cheapest form of life coverage available is relatively inexpensive even for those who use tobacco products. Even if you cannot afford a $500,000 policy an inexpensive $100,000 policy will offer loved ones some measure of security upon your passing. For those who have employer life insurance spoken about earlier. Upon leaving these policies can be converted into permanent (whole) policies without showing proof of insurability. Please note the window for this conversion is typically 30 days.