(FinancialHealth.net) – You’re young. You’re healthy. You have a family and a home. Life insurance is probably one of the last things on your mind, but it shouldn’t be. It should be at the forefront, and for good reason.
Determining Your Need
Do you have a spouse? Do you own your home, even if it’s still mortgaged? Do you have children? If you can answer yes to any of these questions, then life insurance should be at the top of your financial planning priority list.
Term life insurance is most appropriate in these instances. The term of the policy is clearly defined as a set number of years and the premiums are often lower because the odds of you having to use it are lower than with a whole life insurance policy.
When determining the amount of insurance you will purchase, you’ll need to consider several things:
- How much would it cost your surviving spouse to pay off your mortgage and any other large-ticket items with outstanding payments?
- How much would it cost to send each of your children to college? Experts recommend planning $100,000 per child.
- What would it cost your surviving spouse to pay for childcare if he/she had to go to work?
- How many years would you like to replace your existing income? Some experts recommend multiplying your income by 10 to get this number. Would that be high enough for you?
- What would it cost to pay off your existing debts?
- How much does it cost to plan a funeral?
Both you and your spouse should have coverage, even if one is a stay-at-home-parent. You have to attach a value to the changes you’d need to make in your lifestyle if a stay-at-home-spouse were to pass away. Childcare and other related expenses in today’s economy can take up an entire income.
Term versus Whole Life Insurance
For situations like those above, a term life insurance policy with a set expiration date is sufficient because it will take you past paying off your mortgage and sending your kids to college but will ensure your family is protected in the event of your death.
A whole life insurance policy is something you may consider later in life; or sooner if you have no family or assets to protect. The policy has no predefined term and stays in force as long as you are paying the premiums — but also has an investment component you can withdraw from or borrow against later in life.
~Here’s to Your Financial Health!
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