Life insurance is essential if you have a family that depends on you for financial support. Life insurance protects your loved ones if you die. You should consider purchasing a life insurance policy if you are married and your spouse depends on your income, you have children or an aging parent or disabled relative who depends on your financial support or if your savings and other assets are not sufficient for their support. Other good reasons to have life insurance are if you own a large estate and expect to owe estate taxes or if you own a business. Your surviving spouse will need legal council to handle the estate and an accountant to handle the business. Life insurance will provide the money to pay for the necessary professional services needed in this case.
Some jobs are riskier than others; below is a list of the 10 most dangerous jobs according to the Bureau of Labor Statistics:
- Timber cutters
- Airline pilots
- Construction workers
- Truck drivers
- Farmers
- Groundskeepers
- Other Laborers
- Police
- Carpenters
- Sales occupations
Contact your insurance agent to help determine the type and amount of life insurance coverage you need. They have worksheets and calculator tools, which are also available online to crunch the numbers and figure out how much is enough.
Shop around and compare various policies and benefits offered. Premium costs vary so get several quotes before choosing a package that fits your individual needs and your budget. Buying life insurance is the best way to protect your family if you die. The amount of coverage you need increases as your family grows. Life insurance provides the financial support your loved ones will need to replace your income, pay off debts and cover the expenses of settling your estate.
There are two basic types of life insurance. Term life insurance provides coverage for a specified period of time and is more affordable if your need for life insurance is temporary. Maybe you only need the coverage until your children are grown. Cash value life insurance provides a death benefit with a cash value and offers life time protection.
Term life insurance is usually offered for a period of time ranging from 1 to 30 years. For example, if you have young children and you need insurance to provide for them until they have grown and completed college, you will need about 15 - 20 years coverage.
The amount of coverage you need depends on how much income your family needs and how much debt you owe. Your insurance agent will use a life insurance needs calculator to determine this amount. The amount of the premiums will be determined by several factors including your age, health, life style, family medical history and the risk involved with your occupation.
Once you have decided which type of coverage you need, the next step is to submit an application. The application will contain questions about your current and past health history and lifestyle. You may be required to have a physical which is arranged and paid for by the insurance company. Your completed application and the results of your physical will help the insurance company determine whether or not to offer you life insurance and how much the premiums will be.
When you are issued a policy, it is important that you read it over and understand it. The reading can be tedious and the lingo can be confusing, but do not put this off. Read it and make a list of questions to ask your insurance agent. If necessary, meet with your agent and go over the policy to be sure it is what you intended to buy and that it covers your needs. Most states have laws requiring your insurance company to offer a period of at least 10 days to review your policy and to cancel it without penalty.
The most important thing to consider is how much coverage you need. This is also the most difficult part. Some advisors say to multiply your annual income by seven or to buy enough insurance to replace the income you expect to make between now and retirement. Others say to buy enough to cover your debt. Neither of these methods are the right answer. You need to take a complete inventory of all your finances and think about the amount your beneficiaries will need to maintain their lifestyle, also considering children, their college educations and inflation.
Your needs will continue to change as you have children or accumulate assets. If you own a home, your needs will change as you pay down the principal balance. It is important to review your coverage every 3 to 5 years to be sure you have enough coverage. You may even find that as time goes by and debts are paid that you will need less coverage at a lower premium cost.
Figuring out how much coverage you need is a very lengthy and very complicated process including short-term needs, long-term debts, family maintenance expenses, your existing resources, your total expenses and the future value of money.
Short-term needs include final expenses, outstanding debts and emergency expenses, including medical, hospital, funeral expenses, attorney fees, probate costs and outstanding taxes that will need to be paid. Outstanding debts include credit card balances, auto loans, college loans and other bills. Emergency expenses should be included in a cash reserve amount to cover unforeseen medical emergencies or major home repairs.
Long-term debts include your mortgage and college tuition for your children. This one can be difficult to calculate because you have no way of knowing where your children are going to attend college or what course of study they will be going into. The US Department of Education reports college costs to have risen about 5% annually.
Family maintenance expenses include child care, food, clothing, utility bills and transportation costs. These expenses change as your children grow. Child care will decrease as the amount needed for food and clothing increases. Also consider extra curricular school activities that they may be interested in, requiring the purchase of musical instruments, sports equipment and uniforms and field trip costs to name a few.
Add up the total short-term, long-term and maintenance expenses and keep this number handy for the next steps in determining life insurance needs.
Resources you have to meet these needs include savings, stocks, mutual funds, other investments, social security and any life insurance that may be offered by your employer. Only include liquid assets as selling the home or vehicles would mean altering your family's lifestyle, which is one of the things you want to avoid doing by having life insurance.
Subtract the amount of resources from the total you came up with earlier to determine the amount of life insurance you need. If the figure is very high and the premium is not within your budget, see where you can make adjustments. Remember, you will be reviewing this data every few years and making changes accordingly. You will also be calculating in the future value of money based on your investments, your returns and inflation.
Even if you are an expert in finance, accounting and economics, the amount of life insurance you need is a very complex number to calculate. Your insurance agent has tools and worksheets to help you come up with a program that suits your needs and fits your budget. Do some research, ask questions and educate yourself before purchasing life insurance. A competent insurance agent will have plenty of questions to ask you as well to help determine your individual needs. He will also be available to answer questions and concerns you may have in the future and to review your coverage needs as your life changes.
This article was written by Ted Lewicki, a Farmers Insurance agent located in Waterford, Michigan. Ted has been an insurance agent for nearly 50 years. He has been a member of the Better Business Bureau with no reported complaints. Ted interviews his clients to learn just what type of policy they need so that they are adequately covered in the event of an unfortunate accident where they may be sued. http://www.a-oneinsurance.com/ services Oakland County, Michigan with many clients in Waterford, Pontiac, Rochester, Auburn Hills, West Bloomfield, Keego Harbor, Milford, White Lake, Walled Lake, Wixom and neighboring cities and communities.
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