3 Key Aspects to Consider When Buying Life Insurance
Life insurance planning can be a difficult subject to discuss. It involves looking ahead and preparing for a situation that isn’t exactly positive. This could be why 40% of Americans don’t have any life insurance and many more are underinsured. Although difficult, talking about life insurance is an important conversation for every family to have.
Once the discussion is being had, it inevitably turns to, “How much life insurance do I need?”
Some insurance advisors who are focused on sales rather than proper financial planning will simply blurt out a nice, round number like a million dollars. Of course, without actually understanding your situation in great detail, numbers and dollar figures are meaningless.
Better Information for Better Conversations
In this article, we will share some of the factors that professional advisors look at when determining life insurance needs. With this information, you can have more confident conversations about insurance.
1. Do You Have a Family or Dependents?
The life insurance needs for a parent with a spouse and three kids is much different than an individual or even a couple with no dependents. The people that depend on you are the most important factor to consider when buying life insurance.
The age of your dependents also matters. Young children will require care and education for many years when compared with children in their late teens. Life insurance is meant to help support the family and ensure the quality of life after the loss of a family member so, therefore, the family should always be the number one consideration.
2. What Is Your Annual Income?
The main goal of any life insurance policy is to ensure that your families do not experience financial hardship while also grieving the loss of a loved one. It is also reasonable to expect that a spouse may have to take a leave from their job, change jobs, or reduce their schedule in order to care for their family after the passing of their husband or wife.
Replacing your annual income with a life insurance payment can help ensure that your family’s quality of life is not disrupted. Young families may look to get insurance that covers up to 10 years of annual income while families with older dependents may consider 5 years of income replacement.
3. Do You Have Debt?
Many spouses share joint debt and assets, like a mortgage on their home for example. When one spouse passes, the jointly held mortgage still remains the responsibility of the spouse. This is also true for joint vehicle loans, credit cards, and other debts. In the event that there is no joint name on the debt, it will become a responsibility of the estate.
Life insurance allows surviving spouses and family members to pay off debt while continuing to hold the assets. Many people buy enough life insurance coverage to pay off their debts entirely. This is in addition to other expenses that the family will have later in life like college tuition.
Sole proprietors and small business owners that want to keep their business in the family may also wish to consider their business debts when buying life insurance. Often, a small business owner is their business’ most valuable asset and it may take years before the business can recover from the loss.
Get Professional Life Insurance Planning Advice
This is only a small glimpse at what goes into life insurance planning and determining how much life insurance you need. It’s important to get tailored advice that’s designed to suit you and your family.
For a personalized life insurance discussion, please contact us at Mooney Lyons. Our insurance and financial advisors can help you plan and ensure your family’s future is secure and help you determine how much life insurance you need.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual.