Life Insurance: An Important Part of Your Financial Plan
Life Insurance Basics
Many people spend much of their time, efforts and energy creating their family’s assets. Financial goals, present debt and future expenditures all require careful planning. Part of planning for the future should also include adding a life insurance policy to your financial plan.
Just stop and think. Without a life insurance policy would your family be financially secure upon your death or the death of your spouse? Or, would your family be financially devastated by your loss or the loss of your spouse?
Life insurance is usually taken out to protect your loved ones from debts. The most common reason life insurance policies are purchased is so you or your spouse could potentially pay off the mortgage instead of worrying how he or she will make the monthly mortgage payments alone. Life insurance policies could also enable your spouse to pay off any of your existing credit card or other miscellaneous debts as all of those are passed down to your survivors.
If you have children or if your spouse does not work outside the home, life insurance protects your family’s finances by providing money for college and living expenses if you die before your children are able to take care of themselves. Thus, your survivors can maintain their current lifestyle. Life insurance gives your family peace of mind knowing they would be financially protected should your die unexpectedly.
What Should You Purchase?
The following questions will help you determine how much life insurance you should buy:
1. What is your income? It is suggested to buy 10 to 15 times your annual income.
2. What are your short-term debts?
3. What are your long-term debts or financial obligations?
4. How much do you have left on your mortgage?
Your answers to these questions will help you determine not only the face value of your life insurance policy but also what type or what term you need. All decisions will be based on your total debts, financial needs, and the needs of your dependents. If your children are close to becoming financially independent, then you can purchase a short-term policy. If you need a savings vehicle or something you can borrow against, that will entail an entirely different type of life insurance policy.
Review Your Policy Annually
After you decide on the proper face value and type of life insurance policy that you want, it is important to review your policies annually. Our lives are constantly changing, especially in a modern, fast paced world. Each change affects what kind of insurance we may need. For example, giving birth to a new child may prompt you to increase your life insurance coverage. Perhaps a divorce will prompt you to scale back on your coverage or if you have children, you may be required by the courts to maintain coverage to provide for their college education.
Aside from life changing events, you may also review your policy for any other financial protection you may need. Did you start a new business in the past year that would need to be protected financially upon your death? Do you want to leave money to charity or any heirs? All of these things should be considered each year, as our lives are never constant.
Life insurance should definitely be a part of every family’s financial planning. It may mean the difference between maintaining a lifestyle and loosing everything. Life insurance is peace of mind in knowing that if something should happen to you today, that tomorrow all your dreams will continue for your family, by providing financial security for your loved ones, you are protecting your family against the uncertainties of the future. And you can do it for only pennies on the dollar.
Author: Sharon Taylor is a veteran financial writer and frequent contributor to EQUOTE Life Insurance