How Life Insurance Can Fill In the Gaps Left By Life Events
Life never seems to go as smoothly as planned. When we are young, many of us make plans to go to college, end up in a “dream” career, get married, buy a home, have children, raise a family, send the kids off to college and retire comfortably. Along the way, an unexpected death of a loved one can shatter these dreams. And while we never fully adjust to life without someone close to us, life insurance can at least ease the financial burden left by their absence.
Here are some of the ways life insurance covers the gaps left by an unexpected death:
Final Expenses: The most direct expense that everyone needs to pay when a loved one dies is funeral and burial/cremation. Funeral costs and other final expenses can be paid with a small amount of life insurance (in most cases, $10,000 to $15,000 should be enough).
Income Replacement: For a breadwinner, it is important for your family to maintain the same standard of living until your youngest child is out of high school. For example, if you earn $50,000 per year (after taxes because life insurance benefits are tax-free) and your youngest child is 10 years old, you should have enough coverage to provide 8 years-worth of income; 8 X $50,000 = $400,000.
Stay-at-Home Care Replacement: If you are a stay-at-home parent, you provide care for which you are not compensated. But if something happens to you, your children will need day care until they reach school age. These costs should be factored in to the policy you choose.
Child Support Replacement: If you are divorced and paying child support, your children depend on you to provide food and shelter. Similarly to income replacement, you should have enough life insurance to provide child support until your youngest child turns 18. If you are the custodial parent and recipient of the support, this type of life insurance can often be negotiated as part of the divorce settlement.
Debt Elimination: If you have a home mortgage, car loans and other debts, it is important to eliminate these if your family can no longer rely on your income. Choose a policy with enough coverage for these obligations.
College Fund: If you want your children to have enough money to attend college without going deep in debt, make sure to include enough coverage for this as well. Tuition costs are always rising, so it is difficult to determine how much is needed. Currently, $50,000 is enough to cover many community colleges and public universities for four years.
Business Continuation: If you have a business in which you are a key member, its very survival may be dependent on having a financial safety net if you are gone.
How much does Life Insurance Cost?
When you add up the coverages that are applicable to your circumstances, it can seem overwhelming. In many cases, you many need $500,000 to $1 million to be fully insured. The good news is that because of increased life expectancies, life insurance rates are continually dropping. If you choose a $1 million term life policy for example, it can often be obtained for under $100 per month (depending on your age, gender and health).
To find out how much coverage you need and what is available, the best place to start is to speak with an independent life insurance agent. Independent agents have access to several of the top insurers in your state, and can shop for you to find you the right policy to fit your needs and budget.