The Basics of Life Insurance and Why You Need It

When most people think of insurance, they think of Auto Insurance and Homeowner's Insurance. It seems odd to me that the most important thing, your life, is the last thing most people think to insure.
There are several types of life insurance, but the most common are Term Life Insurance and Whole Life Insurance. Term life Insurance covers you for a specified amount for a specified period of time (usually 10, 20, or 30 years from the date the policy is in force). Whole Life Insurance covers you for a specified amount until death or the insurance company's specified maturity age (usually age 100).

I am a firm believer that everyone needs life insurance because everyone is eventually going to die, whether you like it or not. Once someone sees the need for purchasing life insurance, the question then becomes, "How much should I buy?"
Everyone has a different need for life insurance, and your needs may change over time. Here is a basic way of determining the amount of life insurance you need.

First, you must think of what would happen to your family upon your death. Would they need to cover burial costs? Would your spouse be able to survive on one income? Would your children be able to go to college? Would the house need to be paid off? Would there be debt that needed to be paid for?

So, to figure out an amount of life insurance, you would add up these needs. Think of the cost of burial costs, add in enough to pay off your mortgage (if this is something you'd like to do), add in money for the children's education (if desired), add money to pay off other debt, and add money to replace your income.
If you are adding in money to replace your income, you need to figure out how much of your income needs to be replaced in order for your family to be comfortable, and how long that income would need to be replaced (i.e. $20,000 a year for 5 years = $100,000).

Once you've figured out an amount, then you need to divide it into permanent and temporary needs. Permanent needs are those that will never go away (i.e. burial costs), and temporary needs are those that might not be needed as you age (i.e. providing for your children's education). For instance, if you die when your children are 25, 27, and 29, you probably don't need to worry about sending them to college.

As an insurance agent, I can tell you that if you divide your needs into permanent and temporary, you can save money on policy premiums. I suggest purchasing Term insurance for the temporary needs (Term policies are less expensive) and a Whole Life Policy for the permanent needs. That way, your policies adapt with your changing needs, and save you money as well.