More than just Life Insurances
Life Insurance is not just for people who want to make sure their families are financially secure in the event of their untimely death. It’s also for people who simply fear what will happen if they become so sick or physically fragile that they can’t work anymore.
It can be a difficult subject to discuss and an even more difficult one to understand, but this post will offer some information that might change your mindset about life insurance and help you find out what you need.
While life insurance is a common thing to have, it’s not the first thing you think of. It’s not until something tragic happens to someone you know, whether that be through death, disability or an accident causing their health to break down that you begin to think about your own coverage [2].
Despite the fact that most of us are required to carry some form of life insurance, many people have never been told how much they need, or why. There are several reasons for this. One is that we often hear only one side of the story from Insurance companies and they clearly aren’t telling people enough about how much coverage is required by law in order for them to stay within the limits.
Another reason is that most of us don’t have a clue about how much we need, which can make it difficult to purchase just the right amount of coverage. Then we don’t hear about it again until our families are in a situation where they really do need the protection. Then it becomes too late to apply for more coverage, because at that point, getting insurance may be extremely difficult.
So, how do you know how much coverage you should have? On average, American households are under insured by $50,000 when it comes to life insurance [3]. This means that most households have less than half of the coverage they really need.
What Are You Really Needing?
To figure out what amount of coverage you need, you first need to determine what your family’s expenses will be in the event of your death. One way to do this is by thinking about how much money it would take for you to no longer be contributing to your household, and list all the costs associated with that scenario. These can include things like mortgages, the cost of food, utility bills and taxes.
If you have any loans like student loans or car payments, make note of how much they are for and how that would change if you were no longer around [4].
Then, think about how much you currently contribute to your family in terms of your income. If you are the sole breadwinner, then you will be hard pressed to support your family if you can’t work anymore.
A good rule of thumb is that life insurance should replace at least 5-10 years worth of income [5]. This means that if you are the sole income earner and bring home $5,000 per month, then you would want life insurance that provides at least $250,000-$500,000 in coverage.
When looking at your coverage needs for life insurance it’s also important to consider how long it will take to get back on your feet financially after a tragedy. If you or your spouse are laid off, it could take a few months to start making money again. You could even be facing bankruptcy. In some cases, it can take years to bounce back financially and having enough insurance to keep your family afloat during this time is crucial [6].
What Are Some Other Options?
There are several ways to get the coverage that you need with the right kind of death benefit. One of these ways is by purchasing a “key person” life insurance policy [7]. These policies have limited death benefits (so you don’t have to worry about outliving the policy) and can also be written for any amount you need.
These policies are also great because they also allow you to go over the coverage amount that you would get with a traditional policy. Key person life insurance is so flexible, in fact, that it can even cover you if your business fails. They are far more flexible than a standard life insurance policy and are an effective way to grow your coverage amount when you need it most.
If there’s someone in the family that needs additional protection when it comes to their disability, then this policy might be ideal for them as well. It can even replace previous policies because you can change the insured as needed [8].
Another option is by purchasing an additional rider on your existing life insurance policy [9]. This can be a great solution because it allows you to grow your life insurance coverage without having to buy a completely new policy if you’re just looking for some extra protection.
There are several different types of riders that can be added on to any kind of life insurance policy, including the cost of live-in caregiver care [10]. These riders have been designed specifically to help families with young children who need assistance with day-to-day living.
The best way to ensure you have sufficient coverage is by taking a hard look at your current coverage amounts and using this information to evaluate how much more you actually need.
This post was sponsored by Key Person Life Insurance. Please visit their website to learn about the possible benefits of a Key Person Rider policy.
Your Turn: Do you have enough coverage? Tweet me your answer @PittsburghStory or post it below! Comment below and share your thoughts!
References:
1) http://www.pwc.com/us/en/insurance/publications/assets/pwc-family-income-study-2010.pdf (PWC Family Income Study 2010) 2) http://www.ehow.com/way_5175077_understand-life-insurance.html 3) https://bigthinktankblog.files.wordpress.com/2013/10/pwc-family-income-study-2010.pdf 4) http://singlemomsinsurancetips.blogspot.com/2012/03/how-much-life-insurance-should-i hire.html 5) http://www.360financesusannebarker.com/2014/01/how-much-lifeinsuranceplainandsimple/. 6) http://www.huffingtonpost.
Conclusion
No matter what kind of life insurance you need, you can apply it to your current coverage amount and pay less than you would without any additional coverage. Additionally, all of the plans that were mentioned in this post have different features and can provide you with additional protections as well.
Key person life insurance is particularly great because it can grow your life insurance coverage without having to buy a complete new policy. It’s a particularly good option for people who might be able to afford a policy with more death benefits but need some other added protection as well.