Getting the life insurance you need

No one likes to think about dying, but protecting your family against the financial hardship of an unexpected death should be part of your financial plan. Use these steps to help find the right life insurance for you and your family.

1. Determine how much life insurance you need.

If you’re single and no one is dependent on your income to maintain their financial independence, your need for life insurance may be low or non-existent. If you have dependents:

 

• It’s a good rule of thumb to obtain coverage equal to eight to ten times your annual income. For example, if you have income of $75,000, you may want to have life insurance policies providing $600,000 to $750,000 of death benefits.
• If you have young children, dependents with special needs, large debts or other special considerations (like paying your kids’ college tuitions), you may want to be on the higher end of this range.

 

2. Choose the best policy for your needs.
The two basic types of life insurance policies are “term” and “permanent.”

• Term policies offer protection for a period of time – for example, while you have kids living with you until they graduate from college. Term insurance is payable on the death of the insured.
• Permanent life insurance provides a death benefit but these policies also have a "cash build up" feature that acts like a tax-deferred savings account. These policies have a cash value. Typically, these permanent policies are more costly than term life insurance.

 

When evaluating these types of policies, be sure to consider all the costs and the amount of death benefits. Ask for a history of "cash value" earnings the insurance company has paid previously. You may find that it makes sense to "buy term and invest the rest."

 

3. Check with your employer first.
A great place to begin your search for life insurance is with your employer. Many employers offer it as part of their employee benefit program.

• Some employers pay the entire cost for a certain level of benefits and then offer a supplemental insurance option.
• You may have the ability to buy a policy with benefits of one to three times your annual income at relatively low rates. The rates on these types of group plans are often very attractive.

Be sure to consider whether the level of coverage your employer provides is sufficient to provide the financial protection your family needs.