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Life Insurance
Who needs life insurance?
Look at a few demographics that benefit from having a life insurance plan.
Unmarried moms
Millennial moms in their 20s and 30s may think they are too young for life insurance, but financial advisors say new parents often need life insurance the most. Over 40 percent of babies in the U.S. are born to unmarried women, up 10 percent in the past decade.
Stay-at-home parents
Stay-at-home parents still gave financial value to their families. A death to a parent may force finances to go towards day care or nannies. While a huge life insurance policy may not be necessary, there is a policy that fits the financial needs of a family.
Older couples
A life insurance policy is great when looking to provide extra money or cover unexpected medical costs for a spouse. Couples are buying homes later in life, meaning mortgage payments run beyond their 50s. Parents are having children later too, creating a surge in college tuition bills while caring for their own parents.
Businesses
A common reason to buy life insurance has to do with business. A partner in a small business and the success of the business relies significantly on the ability to bring in clients and money. Some buy life insurance policies that name their business partner as a beneficiary. In many cases, business lenders require the borrowers to carry life insurance in the amount of their loans.
How much life insurance do I need?
Having dependents, you should plan to buy enough to replace the income generated by you. Having a plan to cover family expenses that may be unexpected provides a comfort amongst your family. At a minimum, plan for $15,000.
An example of how much life insurance to get
Suppose a 36-year-old widow did not work and had two children, ages 4 and 1, in her care. Her deceased husband earned $36,000 at death and covered by Social Security but had no other death benefits or life insurance.
The life insurance amount needed today to replace the monthly income is at least $360,000. Adding $15,000 for funeral expenses brings the minimum life insurance needed for this example to $375,000.
But that is not the end of the story
Some people like to use life insurance to pay off the home mortgage at the primary income earner’s death, so they are less likely to lose their home.
If the mortgage balance is $200,000, then the amount of insurance jumps to $575,000.
What about college tuition for the children?
Some people want to send their children to college out of their life insurance policy. Let’s assume that each child will attend a public college for four years, costing $15,000 per year. If life insurance were purchased, the additional amount of insurance needed would be $200,000. The insurance amount needed is $775,000.
Valuable reminders
- In emergencies, having life insurance is better than having none. Don’t put off the decision.
- You can layer coverage using multiple policies, if you didn’t buy enough coverage the first time, you can get additional coverage through another policy.
- Perks and rewards are secondary to premium amounts and coverage, but different insurers offer them.
