So, you’ve learned at least the basics of life insurance works; now it is time to make a decision. Do you need life insurance or don’t you? If you do need insurance, how much coverage do you need? Read on to find some answers that will help you make the decision that’s right for you.
Do I need life insurance?
The short, annoying answer is: maybe. Not every person needs life insurance. But it may be helpful to almost anyone.
Let’s take care of the obvious first: if you are the only breadwinner in a family with children, life insurance may be a very good idea; it takes money to support children and give them the lifestyle they deserve. The same principle applies for a family with two working parents, where the loss of one income would mean a loss of standard of living.
If it takes two of you to pay the bills, what would happen if one of you suddenly couldn’t contribute financially? Would you be able to keep your house? Could your kids stay in the same schools? If you want to make sure that the answer is yes, life insurance can help to put your mind at ease.
Even if you don’t have children, life insurance may be a good idea. Let’s say you make more money than your spouse; if you have a life insurance policy and something happens to you, your spouse could continue to have the same standard of living and not be left short financially. The same applies if you just bought a house as a couple and it take two incomes to pay the mortgage. Life insurance helps to maintain the normal lifestyle of the surviving partner.
If you’re single and unattached, life insurance may still make sense. If you died, you would have funeral expenses and possibly debts such as student loans. Some debts are written off as uncollectable when a person dies, but others, like some student loans, may be passed to your parents if they co-signed for the credit. Even if you have no debt and no dependents, life insurance can help with funeral costs.
How much coverage do I need?
This is a complicated question. First of all, find out if you have an existing life insurance policy through your superannuation fund or your employer; an existing policy may influence your decision. Now comes the hard part: putting a dollar amount on your life insurance needs.
Do you want insurance to cover just your funeral and other expenses you’ll leave behind, or do you want it to let your family maintain their standard of living for some time? Were you hoping to pay for your children’s college education? How much income were you bringing in to the household each year, and what exactly was your family spending?
These questions are huge in scope and vary widely from one family to another. So first, do some research into life insurance companies and plans; read reviews online and talk to friends, family and neighbors to find a reliable, reputable company. If you’d like to work out an estimate of the coverage amount to help you shop around, an online “life insurance calculator” may help to give you a starting point.
One last pointer on life insurance: don’t forget that your needs change as your life changes. When you reach milestones in your life such as getting married, having children, buying a house and so on, reassess your needs and your coverage and see if a change needs to be made.
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