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When you really think about it, life insurance is not at all focused simply on money, numbers, forms, medical exams, and contracts. All that is only a part of the legal requirements and processes involved, but at bottom - life insurance policies are all about relationships.
After all, it's not the insured who will directly benefit from life insurance but his or her beneficiary. It's only because you care about what kind of life your loved ones will experience after you're gone that you even consider buying a life insurance policy.
How Life Insurance Can Benefit Your Loved Ones
When a death occurs in the family, it's already an emotionally distressing time full of grief and confusion. Add to that an uncertain financial future due to the loss of a family's main source of income, and the situation grows considerably worse.
A term or whole life policy can alleviate numerous possible negative consequences your loved ones might otherwise face after your passing. For example, syncing your insurance policy to your mortgage can prevent the loss of your home; a well timed policy can also ensure your children will be able to attend college; and the policy's benefit can take care of debts and final expenses that would otherwise burden the bereaved.
The benefit is tax exempt and can be used by those you leave behind in any way that best meets their needs. Relying solely on a savings account or stocks and bonds and other investments can be dangerous. If those other provisions fall through, life benefits will still apply no matter what.
How Much Life Insurance Do I Need?
How much and what kind of life policy you need depends on your situation and your goals. A term life policy protects you for a specific period of time only, while a whole life policy will pay a benefit regardless of when you pass away (so long as you make the premium payments.) Term life, on the other hand, is much less expensive than whole life. You have to decide based on the purpose of the policy and your own financial means.
As to the amount of the benefit - $50,000, $100,000, $250,000, or more, how much is "enough?" In some cases, you need to insure yourself based on how much you owe on your mortgage or based on how close you are to retirement, when social security and pensions would kick in.
The rule of thumb regarding how much of a death benefit your beneficiary might need is to consider how the loss of your income might impact the household and if they will be able to maintain their current standard of living after you are gone. A starting point would be to add up your income and multiply that by how many years the beneficiary might need to live off the death benefit. Consider the age of your children, cost of childcare, college expenses, etc. leading up to your spouse's retirement age, inflation, future expenses, and so on. An experienced life insurance adviser can help you through this process.
Then, subtract pensions, social security payments, retirement benefits like 401(k) plans, and all other sources of income your loved one will have access to. The resulting number will be the ideal amount to insure yourself for. If that number is too high, then get as close as you can to "fully insured".
For more help on deciding how much and which kind of life insurance to purchase, contact Summerlin Benefits Consulting today to speak to an experienced insurance agent! Don't leave your loved ones financially unprotected!