Some people know a lot about life insurance while others know very little.
The one thing that most people seem to know and agree on, however, is that they need it. Maybe lots of it. Some people might go and ask questions about life insurance of friends, colleagues or loved ones but, the truth it, how much and what kind of life insurance you need in a complex equation related to salaries, incomes, family plans, resources and more.
If you are considering buying life insurance for the first time, amending or adding to your current policy or simply reviewing to make sure you have the right coverage, this article can help you start asking yourself the right questions about life insurance.
The other thing that can help is finding a lawyer that specializes in estate planning. If you don’t already have a lawyer with this specialty in your address book, Asia Law Network can help to match you with qualified, verified lawyers working in estate planning in your area.
Go through this checklist and ask yourself five important questions about life insurance:
1 – What Is the Money For?
For most people, the answer to this question is income replacement. The life insurance benefit payments that you pay premiums for are, in most cases, used to replace the income you would have made for your family if you had remained alive.
This meant to be used by your family the same way your salary would have been. It’s designed to cover mortgages, taxes, bills and living expenses.
For some savvy life insurance policy purchasers, they might use a policy to create bigger benefit payments that can be used to create extra income for their family or cover foreseeable incidentals such as inheritance taxes if they are leaving high-value, taxable items to heirs.
2 – What is Your Family’s Financial Expectation of You?
Are you the sole breadwinner in your family or does your spouse also work? Do either of you have a trust that will keep the family afloat? Do you have sizable investments that could also keep the family solvent?
These are the sort of issues you need to consider when answering this question. In many cases, the answer to the first question will be, “Yes, I am the sole breadwinner.”
In that case, you life insurance benefits need to provide 100% of what your family needs to survive. If your spouse also works, and would continue to do so in the event of your death, then your benefits might need to be only 50% of what it would take to keep your family financially afloat. If you both work and have sizable investments that pay out well each year, perhaps your life insurance benefits need be only 25% of the family budget.
After you’ve answered these questions and come up with a percentage, you will start to get a feel for how much of life insurance payout you might need.
3 – How Much Insurance Do You Currently Have?
You might have a simple policy that someone suggested to you years ago or perhaps you have life insurance through your job. Have you taken the time to really review what the policy offers and if that will cover what your family needs in the event of your death?
Don’t rely simply on the one-size-fits-all life insurance offered through your job. Employers tend to offer a death benefit of a number between one and three years’ salary. For most families, that is not nearly enough to keep them afloat for the long term.
You also need to consider that if you quit or get laid off, you have no coverage at all. It is safer to deny your company’s policy (unless it’s free, of course) in favor of choosing your own custom plan, paying your own premiums and keeping the policy no matter where you are working.
4 – What’s Happening in Your Family’s Future?
When thinking about the benefits needed from your life insurance you need to think of your salary and your family’s budget, of course, but you should also consider high-priced expenditures down the road. Think about if your family is going to need a bigger home, schooling expenses, the weddings of your daughters or other dreams you have for your family.
5 – Does Someone You Trust Know Where The Policy Is?
This is something that not enough people think about. The insurance company does not automatically know if something happens to you. They need to be contacted by one of your friends, family members or your will executor before they pay benefits.
Make sure that someone you trust knows where the policy is kept and what to do in the unfortunate circumstance that they need to contact the company.
Remember to review your policy with your estate planner every couple of years to make sure that is it consistent with what’s happening in your life. It’s also a good idea to review your policy when you have any major life change such as buying a new home or welcoming a new child.