Life insurance is one of those things that most of us do not enjoy thinking about. The reason is obvious: it’s centered around our death or the death of someone else that is important to us.
Even so, it’s something that everybody needs to think about and plan for adequately.
The few with no needs
Some people don’t need life insurance. If you have no dependents, no liabilities that will need to be paid off, and assets that could be used to settle your matters, you might be OK without a life insurance policy.
The rest of us
Most people don’t fall into that category. Most of us, if we were to die, would leave behind those who would greatly benefit and likely depend on a life insurance settlement.
I’m 37 years old. My wife is 30. We have two children, aged 3 and 1. She’s a stay at home mom, which there are considerations that should be taken into account.
If I were to die, all of our household income would go away, leaving her with nothing to provide for herself and our children. If my wife were to die, our income would not be affected but costs would rise as my children would have to be cared for outside the home, with costs likely.
Therefore, we both have life insurance coverage. Because of the reasons stated above, my coverage is higher than hers.
How much is enough?
Having the right amount of insurance is important. Your goal should be to leave enough behind so that your loved ones could settle all of your financial matters, and have the money left to cover the change in income or expenses that would result from your death for an appropriate time. That time depends on your situation and everybody’s is different.
My coverage is roughly ten times my annual income. This seems like a lot, but if I were to pass, I would expect that my wife would pay off our home and fully fund the college plans for our children. This would reduce the amount left by quite a bit, but would also reduce the monthly costs associated with those. It would likely last her for a number of years, during which I would expect she would re-marry or devise a new life plan to continue forward. In either case, it would be a bridge.
It’s important to have a good estimate of what you might need. You may think there’s no such thing as getting too much coverage, but there is. Getting a $10 million policy if your household income is $50,000 per year is likely very much overkill, and you’ll likely find that it will cramp your lifestyle while you’re alive. A good life insurance policy should not do that.
You’ll want to perform regular review of your coverage. Any time you have a life changing event (new baby, kid going to college, divorce, etc.) you should do a thorough review, and you should so periodic reviews along the way even if nothing changes.
Who knows what our final thought in this world will be? We won’t know until we get there, but if you have a good life insurance policy, you’ll at least know that it won’t be wondering how your loved ones are going to make it.