Protecting your family: How much life insurance is enough?Written by Alexander H. Due | | email@example.com
All parents have one thing in common: The need to provide for financial support of the family in the event of an untimely death.
Parenthood is joyous and many of us revel daily in the miracles that are our children. For this reason, there is an understandable discomfort in having to imagine what would happen if our children lost one, or both, parents at any particular moment, but this must be done to plan for proper life insurance protection.
Beyond the need for funeral costs and final expenses; determining life insurance needs is dependent upon preparing for various possibilities that, although frightening, could become reality. So how exactly do you go about determining your life insurance needs?
There are basic daily living expenses that would need to be provided for regardless of any situations, such as food, clothing and shelter. First, determine the ongoing expenses and assign their estimated dollar value. Beyond these basic needs, decide the lifestyle you want to provide those left behind. Some of the items to keep in mind are:
• Debt (credit cards, car loans, personal loans)
• Educational expenses (private schooling, higher education)
• Life events (marriage, first cars, graduation)
• Extracurricular activities (hobbies, sports, clubs)
The next step is to determine what income sources will be available after your death. Such sources may include survivor pensions, Social Security survivorship benefits and surviving spouses’ projected income from work. Know exactly when and how income sources would pay because some, such as Social Security, will vanish when children reach certain ages.
With your estimated expenses and income giving you a preliminary idea of the anticipated financial shortfall (the amount by which the expenses exceed the income), you have an idea of the amount of insurance needed and for how long to tailor a life insurance program for your family.
Life insurance falls into two basic definitions:
• Term insurance: The cheapest to buy, it provides a death benefit with guaranteed level premiums for a designated number of years, typically 10 to 30 years.
• Permanent insurance: Also know as Whole Life (WL), Universal Life (UL) or Variable life (VL). These cost more than term, but do not expire in a designated number of years and as long as the policy premium is paid, the insurance remains in force. With UL and VL, ensure you understand what estimates are used with the non-guaranteed returns and that the estimates are realistic, if depending on the non-guaranteed performance to keep your policy in force long term.
While a portion of your insurance need may be permanent in nature, a large portion can be a temporary need to provide for the expenses of raising and providing for children in a 20- to 25-year window. By defining your temporary need, you can purchase this portion in term insurance at the lower cost.
Lastly, remember you do not need to do all of this alone. A licensed insurance agent can prove valuable in planning — assisting with defining the amount of insurance you need and with how to fund that need whether with term, permanent or a combination of both. Purchasing online might seem economical, but you may wish to use a local professional who can meet in person, not only when initially purchasing your policy, but also in subsequent years to assess your changing needs.
Alexander H. Due is executive vice president of the employee benefits division at Roemer Insurance.