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Life Insurance |
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Life insurance or life assurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a designated beneficiary a sum of money upon the occurrence of the insured individual's or individuals' death or other event, such as terminal illness or critical illness. In return, the policy owner agrees to pay a stipulated amount called a premium at regular intervals or in lump sums. There may be designs in some countries where bills and death expenses plus catering for after funeral expenses should be included in Policy Premium. In the United States, the predominant form simply specifies a lump sum to be paid on the insured's demise. |
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Who Needs Life Insurance?
If someone will suffer financially when you die, chances are you need life insurance. Life insurance provides cash to your family after your death. This cash (known as the death benefit) replaces your income and can help your family meet many important financial needs like funeral costs, daily living expenses and college funding. What's more, there is no federal income tax on life insurance benefits.
How Much do I need?
The answer isn't really how much life insurance you need, it's how
much money your family will need after you're gone.
Ask yourself:
How much money will my family need after my death to meet immediate expenses, like funeral expenses and debts?
How much money will my family need to maintain their standard of living over the long run?
Life insurance proceeds can help pay immediate expenses including
uncovered medical costs, funeral expenses, final estate settlement
costs, taxes and other lump-sum obligations such as outstanding debts
and mortgage balances. They can also help your family cover future
financial obligations like everyday living expenses, money for college
or your spouse's retirement, and so much more.
But how do you know if you need $100,000, $500,000, $1 million or more?
The most common way to determine your life insurance needs is by
conducting what's called a Capital Needs Analysis.
Here's how it works. Start by evaluating your family's needs. Gather all
of your personal financial information and estimate what your each of
your family members would need to meet current and future financial
obligations. Then tally up all of the resources that your surviving
family members could draw upon to support themselves. The difference
between their needs and the resources in place to meet those needs is
your need for additional life insurance.
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