September was Life Insurance Awareness Month, which brought in a lot of questions about this often debated insurance type. The most common questions are:
Is life insurance worth buying? Do I really need it?
When you get down to the basics, life insurance is an income replacement plan — it’s there to help cushion the blow of a person’s death for those they love.
So, do you really need life insurance? Or is it a waste of time and money? There are three key questions you need to ask yourself.
3 Variables to Consider
Question 1: Will someone financially suffer if you die? For example, do you have a spouse, partner or child who depends on your income?
If your family would suffer financially by your death, that’s a strong motivation to consider life insurance. Visualize your salary going away. If you see that as a detriment to those around you, then the answer is yes.
Question 2: Does someone depend on you for caregiving or support?
While you may think of life insurance as a way to provide for spouses, partners and young children, it can benefit anyone who depends on you financially, such as parents, siblings, adult children or disabled family members.
Question 3: Do you share a major financial commitment like a mortgage or business?
If you own a business, you have even more to protect and might need a more personalized solution than a simple life insurance policy.
If you answered “yes” to any of these questions, life insurance is worth considering.
How to Calculate Your Coverage Amount
Calculating how much life insurance you need is not as hard as you may think. However, it also shouldn’t be a random number pulled out of a hat, or a rule of thumb — like everyone should have 10-12x their salary.
A Needs Analysis is a mathematical approach that looks at how much life insurance will be necessary at death to meet immediate obligations, and what future income will be necessary to sustain the household.
Below is a sample Needs Analysis. It takes into account the future income needs of the survivors, any obligations or expenses that need to be paid off, as well as any existing assets or insurance. It then calculates if the person currently has enough insurance or if they would need to supplement it with additional insurance.
Example of a Needs Analysis
A Needs Analysis is not something to do just once. It’s important to review your life insurance needs annually, or when you experience a significant life event. Examples of life events include having a baby or changing jobs.
At the time of writing this article, the United States is currently experiencing “The Great Resignation,” as millions of people are quitting their jobs and retiring early — which could mean giving up coverage provided through work. It may be time to consider getting your own policy.
Reasons you may want to get your own life insurance policy:
- It’s portable. You may lose your employer policy when you leave your job, so having your own policy prevents any loss of coverage.
- It’s often cheaper. If you are in good health, it may be cheaper to purchase your own policy.
- You usually can get more coverage. Employer coverage is often limited to a multiple of your salary.
- Underwriting has gotten simpler. One of the former appeals of employer group coverage was that the underwriting is simple. However, insurance carriers have loosened the requirements for getting a full medical exam for coverage, making it just as appealing.
No one likes to think about death, and no one considers writing insurance premiums attractive, but having the proper coverage could go a long way in protecting your loved ones.
Interested in creating a life insurance plan that works for you? Schedule a call with our advisors to get started.