Who Needs Life Insurance?

Last updated: March 29, 2016

What Is Life Insurance?

Basically, life insurance is financial protection.

  • When you buy life insurance, you draw up a contract with an insurance company.

    • You agree to give premiums (or payments) to the insurance company in exchange for a lump sum payment when you die.

    • Upon the your death, your dependents or beneficiaries receive this "death benefit".

Why Life Insurance Can Make Sense

Life Insurance can serve a variety of purposes:

  • Life insurance can help your family make up for loss of steady income upon your death.

  • It can help reduce any burdens of debt that your dependents inherit when you die.

  • It could mean your dependents won’t have to sell their own assets or go into debt to pay your outstanding bills or taxes.

  • It can be used to help with other financial goals: such as retirement or education.

Your need for life insurance will vary with your age and your responsibilities.

  • The need is usually greatest for families with children and only one breadwinner or when there aren't enough savings to support the surviving family members for long.

Factors To Consider:

Before buying life insurance, gather your personal financial information and review your needs. There are several factors to consider when deciding how much life insurance you need:

  • Will you have any immediate needs at the time of death?

    • Such as medical expenses, burial costs, and estate taxes.

  • Will your loved ones need funds for a readjustment period?

    • For example: to finance a move or to provide time for remaining family members to find a job.

  • Will there be ongoing financial needs?

    • Such as monthly bills and expenses, daycare costs, college tuition, retirement, etc.

There is no substitute for a careful evaluation of the amount of coverage that you need. However, a good rule of thumb is to buy life insurance five to seven times your annual take-home pay.

  • This varies based on individual circumstances, such as income level and how much insurance one can afford.

  • It is important to remember that the main purpose of life insurance is financial protection for your loved ones.

    • If this is not your primary goal, life insurance is not the tool you need.

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