"The only thing you take with you when you're gone is what you leave behind."
- John Allston
Life is unpredictable. You might randomly bump into an old friend or score a winning lottery ticket. But life's capricious nature also makes it necessary to have sufficient life insurance to protect your family.
According to the Life and Health Foundation for Education (LIFE), 68 million adult Americans have no life insurance. Those who own life insurance have an average of four times their annual income in coverage, which is considerably less than most experts recommend. But how much is enough? The answer to that question varies depending on your personal circumstances.
Often when a person dies prematurely, his or her surviving family members have to make considerable life changes to adjust to the new financial and domestic situation. That can mean working fewer hours to care for young children or taking a second job to compensate for lost income. Meanwhile, the family is also dealing with the tragedy of losing a spouse or parent.
According to Brian Ashe, chairman of LIFE, there are three areas to consider when calculating your life insurance needs.
Immediate Expenses: This category includes funeral and burial costs, lawyer fees, mortgage balances and outstanding debt.
Ongoing Expenses: What are your family's day-to-day expenses? Think: groceries, gas and utility bills. An adequate life insurance policy allows your family to maintain its standard of living in your absence.
Future Expenses: Things like school, college tuition and retirement fall under this group of expenses. Without your income, will your children still be able to attend college? Will your spouse be able to retire as planned?
Add those expenses, subtract existing resources, such as investments, your spouse's income and other life insurance policies, and get an estimate for the amount of life insurance you need. For a more exact number, use a life insurance calculator.
Most people consider life insurance a type of insurance for older individuals. But regardless what stage of life you're in, if you have people who depend on you, you need it.
A Few Scenarios
Your family only consists of two—you and your spouse—but you likely depend on each other's salaries to some extent. The life insurance you purchase covers funeral costs and allows time for your spouse to cope with the loss and get back on his or her feet.
As the sole wage earner and guardian, your need for coverage exceeds most. However, almost four in ten single parents are without any life insurance. Many single parents are strapped for cash and feel they can't afford the additional expense. However, David F. Woods, president of LIFE, argues that a $500,000 policy can cost as little as a dollar a day. Just think, by foregoing that morning coffee, you could preserve your children's financial future.
If you were no longer able to care for your children and keep up your home, how much would it cost to hire a person to take over those responsibilities? A life insurance policy allows your family to maintain its quality of life in your absence.
Your kids are through college and your house is paid off, so you think you no longer need life insurance. The ever-increasing life expectancy means your spouse could out-live you by 10 years or more. Life insurance ensures your financial plans and all you worked to achieve.
Estate tax is a financial burden few consider when thinking about life insurance. Depending on the size of your estate, your heirs could be responsible for a tax of up to 48 percent of your estate. A life insurance policy allows your family to pay for estate taxes, funeral costs and other debts without dipping into its own pocket.
If you're single, chances are you don't need to concern yourself with life insurance just yet. But if you care for an elderly parent or have considerable debt that you don't want to pass on, life insurance covers those expenses.
A life insurance policy shows your family the love and support you are no longer there to provide. Make sure your loved ones are cared for; reassess your life insurance needs today.