You May Need More Insurance Than You Think

Many people avoid making decisions about life insurance because no one likes to think about his or her own death – but if you have a spouse or others who rely on your income, it’s important to ensure they’ll be cared for if something happens to you. And that requires purchasing an appropriate amount of life insurance coverage.

When considering how much coverage is necessary, people often react with horror at the numbers, such as $250,000, $500,000, or even $1 million. “Why would I need that much?” they ask.

The fact is, you might need even more.

Many people consider life insurance a means of providing a lump sum of money that will be gradually spent down. But imagine if the money could actually work for your survivors, earning them a steady annual return. For example, a 6% return on $1 million is $60,000 a year – enough to provide the basics in many care facilities – and a 6% return on $2 million is $120,000 a year, which is a good annual income for your survivors.

Many think they’re covered by a life insurance policy provided by an employer; this is a common misconception. Companies usually only provide the equivalent of a year’s salary, which is probably not enough. As well, your employer’s life insurance benefits may not be portable should you change jobs; you might need several term life insurance policies, which can be added at different times.

If you are concerned about cost, note that there are different types of life insurance. Term life insurance, for example, is the most affordable. It pays a benefit to the survivors you name, if and when you die within the specified “term” or period of time.

If possible, purchase your term life insurance policy sooner rather than later; the younger you are, the greater your chances of being healthy in the long term, and the lower your premium will be.