How Much Life Insurance Do You Really Need?
Life and Disability Income
If you are providing financial support for people who are depending on you, life and disability insurance is a necessity. Life insurance helps to ensure that your family and loved ones are protected against financial difficulties in the event of a premature death. Disability insurance is a form of health insurance that provides a person who becomes disabled with income to cover living expenses that continue in spite of the disability. These insurance coverages protect against the financial loss that your family would incur if you were to die or become disabled today.
Life Insurance
How much life insurance do you need? Please see our "Calculators" section, in order to estimate your potential needs. A general recommendation is to purchase five to ten times your annual salary, depending on your circumstances (outstanding debts, assets, age of children, etc.) In order to comprehensively analyze your needs, you should obtain a Financial Needs Analysis. Life insurance planning involves two categories:
1) Immediate Needs
How much money would be needed at the time of your death? This is the sum of final expenses (including uncovered medical costs, funeral expenses and final estate-settlement costs) and other lump-sum obligations (such as outstanding debts, mortgage balance, and college costs).
2) Future Needs
How much future income is needed to sustain the household, in the event of your death? This calculation is a bit more complicated and involves estimating the "present value" of future needed cash-flow streams. The monthly income needed for your family, how many years you would need to provide this income, your existing group and individual life insurance amounts, social security benefits, retirement plan assets, and other savings/assets are all important components of this calculation.
Disability Insurance
Disability insurance provides you with an income should you become sick or injured and unable to work. It helps protect your family against financial catastrophe by giving you an income to meet daily expenses. Your monthly income needs for disability insurance may be even greater than for life insurance, because you would also be incurring additional expenses, as a result of your disability (medical expenses, etc.)
A person's income is most likely their greatest asset, even more significant than the value of a home, car, and savings account. Think of a 35 year old, who plans to work for 30 more years. Let`s assume this person makes $50,000 annually. That person will make $1.5 million dollars over the next 30 years, not even taking into account raises or the future value of money.
Disability insurance comes in two major forms:
1. A variety of employer-paid and government-sponsored programs, generally cost-free to the recipient, covering certain categories of workers. Please note that government programs, such as Social Security, have strict eligibility and qualification rules, and can be difficult to qualify for.
2. Private policies (paid for by individuals) that protect income when there are no applicable employer or government programs or when those programs do not adequately meet income needs.
Life and Disability Insurance for Single People without Dependents or Partners:
Life Insurance
Even if you have no dependents now, you may later. If you buy now when you are younger and healthier, you can "lock in" term coverage at a reasonable rate, including conversion features. You also "lock in" the insurability that you may have today, when you are younger. At the minimum, you should have enough life insurance to cover your final expenses.
Disability Income Insurance
This is especially important for self-supporting singles without sizable assets, as your need for income replacement is just as important as for those with families.
Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice.
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