From auto insurance to homeowners policies, there are a lot of ways that insurance can provide protection for your life and property. But even for people who realize the value of insurance, a life insurance policy can still seem like more of a luxury than a necessity.
After all, no one likes thinking about their own death. But the bigger issue is that most people don’t really have a complete understanding of who should obtain a life insurance policy, and when it is necessary.
What is Self-Insurance?
Individuals who are self-insured typically don’t require a life insurance policy.
Self-insured is defined as having enough funds to cover all final expenses; as well as to have enough in savings to comfortably support dependents financially for the long-term. Experts agree that a self-insured person should leave enough to cover their family for a minimum of 10 years. However, a younger family may need enough cash to support them for 30 years.
Self-insured people are typically free of any debt, or can easily liquidate assets to pay off any existing debts. When a lot of debt is left for the family, it can cause a great deal of struggle. Without enough cash on hand or a way to pay off debts, an individual should consider obtaining a life insurance policy to protect their family.
Whole Life or Term Life Insurance Coverage
A whole life insurance policy covers the individual throughout their entire life, up until the age of 120. By contrast, term life insurance policies have a set period of coverage, generally 20 years. Because the term of coverage is limited, term life insurance policies are more affordable than whole life.
Term life coverage is often utilized to provide the individual with time to save money and pay off debts so that they can then self-insure later in life. Most financial advisors agree that the cost savings associated with term life are meaningful enough to make term life insurance an intelligent option for consumers.
The best way to determine if term or whole life is best for you is to speak with your local insurance advisor.
How Much Life Insurance Should You Purchase?
In order to calculate the optimal level of insurance for your situation, these are the factors you should consider.
Annual Income: Insurance experts recommend a life insurance policy which will pay a minimum of 10 times your annual salary. For instance, if an individual makes $60,000 per year, they should carry a minimum of $600,000 in life insurance coverage.
Total Debt: Mortgages, car loans, and outstanding credit card balances all need to paid upon the death of an individual. Enough additional coverage should be added in order to pay off these items as well. Example: If you hold a $200,000 mortgage, $15,000 in car loans, and $20,000 in car loans – and you earn that same $60,000 per year, you should obtain a life insurance policy worth at least $835,000.
Children and Dependents The primary reason individuals purchase life insurance is to care for the needs of a spouse and children. In addition to salary and total debt, you may wish to obtain coverage to pay for your children’s major life events, such as college tuition or weddings.
Obtaining Your Policy
As with any insurance coverage, there are many policy and premium options to choose from. An insurance broker with access to multiple providers can help you to compare coverage options and make a smart choice based upon your circumstances and lifestyle. The team at Ezzi Insurance Advisors are dedicated to helping Port Charlotte area residents to obtain the coverage they need – and to provide the education and guidance required to make the best choice.
