Identifying Life Insurance Needs

Most adults need to have affordable life insurance. There is simply no question about it. No matter your age, your marital status or parental status, life insurance is an important safety measure to consider for you and your family's financial future. One of the most common questions we’re asked is, “how much life insurance do I need?” To really understand how effective life insurance can be as a financial planning tool and how much coverage you need, it’s important to understand how it works and what it can be used for.

Life Insurance Is a Financial Safety Net for Your Loved Ones

Life insurance is a simple and affordable way to leave a cash lump sum for your loved ones when you pass away. You’ll pay a monthly premium for your life insurance and in turn, if you die while the policy is active, it will pay out a death benefit to the named beneficiary. By leaving money to pay the mortgage balance, replace lost income, fund day-to-day living expenses, cover end-of-life costs, and finance education tuition, it’s possible to give your loved ones the life you’ve imagined for them even after you’re gone. Covering these future living costs by enrolling in the best life insurance policy for your needs will protect the people you care about from financial worries and help them maintain their quality of life. So how much money would your family need to avoid financial issues?

How Much Life Insurance Do I Need?

Calculating how much life insurance you need can feel like an overwhelming process, but with a little preparation you’ll be able to work out the proper amount of life insurance coverage you should have. If you’d like help answering the ‘how much life insurance do I need’ question, you can use our life insurance calculator to help you work through your coverage needs.

Are you still asking yourself, ‘Do I need life insurance?’ If so we’ve outlined some of the more common life scenarios to help you determine your life insurance needs. Read on to understand how life insurance can help protect your loved ones and what expenses a life insurance payment could cover.

Review the Following Scenarios to Determine Your Need for Life Insurance

Single, Supporting Loved Ones
Most single people typically do not consider the necessity of life insurance unless they are providing financial support for their family, or they have significant debt they are reluctant to pass on to their family members. If you have loved ones who depend upon you financially, life insurance coverage is necessary to securing their financial future in the event of an unexpected health issue or accident.

Single people should take into consideration the potential of deteriorating health and other sudden unforeseen afflictions when determining if life insurance is necessary for their specific situation. The knowledge that incurred debt would end up being taken on by your loved ones should also prompt singles to seek coverage to protect their family. At a minimum, you should seek quotes for insurance policies that will provide a cash lump sum to cover any debts which could be passed to loved ones and money to cover any costs associated with end-of-life expenses. Many people are surprised to learn the average cost of a funeral in the US is between $7,000 and $10,000, providing for this expense can be a significant help to your family.

Married Couples, with or without, Children
Married couples, with or without children often find having a life insurance policy is necessary to protect what they have worked for, so they can provide for their loved ones in the future. For richer, for poorer, in sickness and in health, life insurance is an important part of any financial plan. It is possible that your family’s future would alter with the sudden death of a loved one, and it’s important to plan for unforeseen situations that may affect your or your loved one’s financial stability.

It is important that married couples ask themselves the following questions when determining how necessary life insurance is for them:

  • Would your spouse’s income alone provide support for ongoing living expenses?
  • Would your family be able to afford to stay in the family home?
  • Would your family be able to afford to pay for your children’s education?
  • Would your financial plans be diminished by your untimely death?
  • Would your spouse be able to cover your final expenses (e.g., funeral costs, medical bills, taxes, household or business debts, legal fees etc.?)

Stay-At-Home Parent
Being a stay-at-home parent is an attractive option today. Advances in technology allow you to stay connected anytime, anywhere. Providing around-the-clock childcare and managing the day-to-day household activities equate to valuable services that would otherwise need to be paid for. In fact, childcare in many states is as expensive as a college education! To support and maintain your family's quality of life, you should ensure that your family would be able to afford childcare services if you were to pass away. Enrolling in a life insurance policy that covers the main caregiver is an effective way to leave a cash lump sum that can be used to pay for services that you currently provide as the stay-at-home parent. Your life insurance coverage ensures that you will be able to continue to support your family in the way you care for them today.

Single Parent
Raising a family as a single parent requires you to be twice as responsible for your family’s wellbeing. Your day-to-day responsibility is to ensure that the kids are healthy, happy and performing well in school. Your long-range goals for them may include paying for college and any unexpected medical bills. This is when life insurance becomes a necessary resource to rely on. It allows your family to maintain all its advantages throughout their lifetime in the event of your passing without compromising the day-to-day care provided to them today.

As a single parent, you should consider who would care for your children and how their care would be paid for if you were to die unexpectedly. A life insurance policy can help ensure that your children’s care costs are covered after you pass away.

Empty Nester Free and Clear of a Mortgage
There may be a sense of financial freedom when you reach the stage in life when your children have moved away and begin supporting themselves. You may even own your home, free and clear of any mortgage payments. This is the time when you are looking forward to your retirement. Although you are in a positive and exciting stage in life, there are compelling reasons for you to seek out life insurance. Not only does a good insurance policy provide for unexpected medical bills, it provides financial support if a spouse were to pass away suddenly. A family’s retirement plan savings and social security may not always cover living expenses to accommodate your spouse and dependents for the next 10, 20 or even 30 years. By having an insurance plan in place, you’ll be able to add to the retirement fund and provide for end of life expenses to reduce the financial loss your early death would have on your family.

Retired in the Golden Years
It is important to prepare for retirement by ensuring that everything regarding your estate is in order. Peace of mind during one’s retirement allows you to enjoy all the sacrifices you made to reach your goals. You will want to leave behind your hard-earned legacy for your family. A life insurance policy allows your family to take care of potential estate taxes, final expenses and other debts down the road. Additionally, the proceeds are generally income tax free and can be structured to avoid probate, mitigating further estate tax liability.

Small Business Owner
When you are your own boss, you need to be responsible for many things. One of those is how to protect your business in the event of your death, the death of one of your business owners or key employees. There are many different policies that can benefit business owners, for example:

  • Buy-Sell Agreement ensures that the remaining business owners have the funds to buy the company interests of a deceased owner at a previously agreed upon price. The owners assume the business interests/shares and the family gets the financial proceeds from the buy-out.
  • Key Person Insurance provides owners of a business with the financial flexibility to protect their company's solvency in the event of losing a key employee or founder.

Finding an Affordable Life Insurance Plan
There are insurance policies available for adults, at any stage of life. Be aware, the earlier in life that you purchase life insurance, the lower your insurance rates will be. For those considering how necessary a life insurance is at their current stage in life – remember, it is best to purchase your policy as a young adult to lock in premium rates for the term of your policy. The low rate stays the same for the duration of the term, even if your health declines during your term of coverage. Don’t wait any longer, learn about the different types of Life Insurances such as Term Life and Whole Life and get a quote today!