- Do I want to spare my loved ones funeral
costs and outstanding debts?
- Am I concerned that my spouse or domestic
partner will not be able to continue to pay off the mortgage
if I die suddenly?
- Do I have dependents who count on my
income?
- Am I concerned about college savings for my children or retirement savings for my spouse if I die suddenly?
While all situations are different, here are
two scenarios to help you think through the questions you should
pose to your insurance professional:
Dependents
If you have children, a spouse who does not work outside the
home or aging parents who you financially support, you have
dependents. Alternatively, you may simply have a spouse or
domestic partner who would be unable to pay the mortgage without
your financial contribution. In either case, your loved ones
will no longer have your income to help them pay the bills and
maintain their lifestyle after you are gone. You will have to
purchase enough insurance to provide for their future, while
considering how much of your budget should be devoted to life
insurance.
Some insurance experts suggest that you purchase five to eight
times your current income. While this may be a good way to begin
estimating your family's needs, you will also need to figure how
much your dependents will need to pay for some or all the
following:
- Cost of owning a home (mortgage,
maintenance, insurance, taxes and utilities)
- College savings
- Food, clothing, utilities
- Child care
- Nursing home or elder care
- Retirement savings
- Funeral expenses and estate taxes
Your family may also need extra money to make
some changes after you die. They may want to relocate or your
spouse may need to go back to school to be in a better position
to help support the family.
No dependents
If you are young and plan to have a family in the future, you
may also want to consider purchasing life insurance now so that
you can lock in a good rate.
Just because you don't have dependents, does not mean you don't
have responsibilities. For instance, you may be concerned with
not being an economic burden to others if you die unexpectedly.
You may also want to leave some money behind to close family,
friends or a special charity as a remembrance. In this case, you
should purchase enough coverage to pay funeral and burial
expenses, outstanding debts and tax liabilities, so that the
bulk of your estate goes to your family, friends or charities.
Your insurance needs will vary greatly according to your
financial assets and liabilities, income potential and level of
expenses.