Life Insurance to Protect your Family

Life insurance to protect your family

It's not unusual for people to avoid buying (or even thinking about) life insurance. Buying life insurance is a bit like writing a will; it forces us to think about death. But, life insurance is an important aspect of ensuring that your family will be taken care of in the event of your death. Life insurance is especially important if you are the primary breadwinner in your family. Following is an overview of the types of life insurance available.

• Term life insurance - this is the most common form of life insurance. Essentially, as long as the premiums are paid, the policy will pay the face amount at your death. This is typically the type of insurance offered by employers as a component of your benefits package. Premiums usually increase as you age, but the benefit does not.
  
  
• Whole Life Insurance- this type of insurance offers level premiums throughout your life. Whole life insurance policies also accumulate cash value, and may pay dividends, as well. As long as your premiums are paid, the life insurance will never have a rate increase and will increase in value. Once you have accumulated enough cash value in your policy, you can withdraw the money to be used for purchasing a home or paying college expenses, rather than having to wait until death to see the full value of the policy.

Many insurance companies offer various forms of the two types of life insurance, and many can help you customize your policy to exactly fit your needs.

How Much Life Insurance Do I Need?

Determining the dollar amount of life insurance you need can be the most difficult aspect of life insurance planning. Here are some questions to consider when determining the right amount of life insurance for your family.

Must my income be replaced? If you're the primary breadwinner in your family, how will your spouse pay the monthly bills without your income? Many families choose to have enough life insurance on the primary breadwinner to support the family for a year in the event of death. Some families choose to have life insurance in an amount large enough to pay off the mortgage in the event of the death of the primary breadwinner. The logic here is that without a house payment, the family can live on the secondary breadwinner's income.

If your spouse is not employed outside the home, this does not mean that this person doesn't need life insurance. Consider the cost of paying someone to perform the tasks managed by the stay at home spouse, such as child care, house cleaning and meal preparation.

Have my needs changed? It's important to reevaluate your life insurance needs periodically. A single person just beginning their career may choose to have little or no life insurance. However, once married and raising a family you'll likely want a significant amount of coverage. Once your children leave the nest, monthly expenses drop significantly, and you may need a smaller amount of life insurance. The same is true once your mortgage is paid in full.

There are many things to consider when choosing life insurance, but it's a very important aspect of your family's overall financial plan. Spend some time evaluating your needs, and then work with your insurance agent to come up with a plan that leaves you with full coverage and peace of mind.