Do You Need Life Insurance?
Before we get to saving you money on life insurance, first find out if you need it or not.
Not everyone needs life insurance.
You may not need a separate life insurance policy if:
- If no one depends on your earning capacity
- Your children are out of college and self-sufficient
- You are covered by union or management pensions
- You have a group life insurance plan
-
Your estate will not owe substantial debts and taxes after your death
In addition to helping to support dependents, life insurance can help provide immediate cash at death. Insurance proceeds are a handy source of cash to pay the deceased's debts, funeral expenses, and income or estate taxes.
Two methods are commonly used to determine your life insurance needs: the (a) expense needs formula and the (b) income replacement formula. You should try both and compare the results.
The (a) expense needs formula itemizes your family needs to determine how much insurance is necessary. Add together the items below:
- Pay off your mortgage
- To guarantee a loan
- Preserve hard, illiquid assets for your heirs
- Pay monthly bills and replace your lost income
- Buy out your heirs' share of your business
- Pay off debts you created
- Funeral Expenses
- Legal Fees
- Postmortem medical deductibles
- Maintenance
- Send your children to college
=_____________ Total Coverage Needed.
Subtract current life coverage, bank savings
accounts, and other assets. This is what your family would need after
you're gone. It will look like this:| Total expenses | | -Life Insurance | | -Cash & savings | | = Life Coverage Needed |
Related Life Insurance Links:
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