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BUYING LIFE INSURANCE
Part 2
In our last article, we
discussed the need to learn more about life insurance and the best way to
make an informed decision in purchasing a life insurance policy. The best
way is to become familiar with the basics. In this series of articles, we
will cover the basics.
In this article, we will
cover two questions you must be able to answer. Why do I need life insurance
and how much life insurance do I need?
Why do I need life
insurance? Life insurance is an essential part of financial
planning. One reason most people buy life insurance is to replace income
that would be lost with the death of a wage earner. The cash provided by
life insurance also can help ensure that your dependents are not burdened
with significant debt when you die.
Life insurance proceeds could mean your dependents would not have to sell
assets to pay outstanding bills or taxes. An important feature of life
insurance is that there is no federal income tax on proceeds paid to
beneficiaries.
How much life
insurance do I need? Before buying life insurance, you should
assemble personal financial information and review your family needs. There
are a number of factors to consider when determining how much protection you
should have.
These include any immediate
needs at the time of death, such as final illness expenses, burial costs and
estate taxes. Also funds for a readjustment period, to finance a move or to
provide time for family members to find a job are needed. Plus money is
needed for ongoing financial needs such as monthly bills and expenses, day
care costs, college tuition or retirement. Your own calculations will give
you a fairly precise idea of how much life insurance you should own.
Although there is no
substitute for a careful evaluation of the amount of insurance coverage
needed to meet your needs, one rule of thumb is to buy life insurance, which
is equal to five to seven times your annual gross income. Remember that a
rule of thumb, just like a size ten shoe, does not fit everyone. Take the
time to review your own financial needs. A PRCUA agent
can help provide guidance in these calculations.
Remember with a knowledge
of life insurance basics, you can ask the right questions and purchase the
right amount and plan which truly meets your needs. |
