Life insurance is an important tool for planning your family's future, particularly if your husband is the primary wage-earner. The cost of obtaining insurance varies, depending on the product you purchase and its benefits. Your family's specific financial situation will determine the amount of life insurance your husband needs, and the type of insurance product he should purchase.
Purpose
Death brings emotional consequences and in many cases, financial hardship. Life insurance helps ease this financial burden by providing a lump sum payment when your husband dies. Through his will, your husband might designate that his life insurance be used for a specific purpose. If he makes no designation, the family can use the money as it sees fit.
Amount
Rule of thumb estimates for life insurance range from four to 10 times your husband's annual salary, depending on the source you use. For a more specific calculation, Investopedia recommends that your husband have enough life insurance to pay your outstanding debt; provide a reasonable income for your family; and pay future costs, such as college tuition for children.
Of these three amounts, income replacement is the most difficult to calculate. To replace your husband's income, estimate a realistic annual investment return and calculate a lump sum investment figure. For example, if your husband earns $30,000 per year and you believe you can earn a 5 percent annual return on an investment, your life insurance policy will need to pay at least $600,000. To this amount, add the total of your outstanding debt and amounts needed for future obligations.
Types
Bankrate.com describes four basic types of life insurance. Term life provides coverage for a specific period of time. If your husband dies during that period, the policy pays out. If not, the policy expires. Whole life insurance is coverage for your husband's lifetime. Premiums are established when he purchases the policy, and remain the same until he dies. Universal life adds an investment component to life insurance, allowing you to pay more than the premium. The excess is invested by the insurance company and any returns can offset future premiums or accrue. Variable life insurance is similar to universal life, except more investment products are available.
Misconceptions
Many people view life insurance as a product that pays a sum of money only on the insured's death. However, some companies combine life insurance with other financial products, providing opportunities to leverage the policy's benefits. Insurance.com notes that some policies allow you to purchase a long-term care rider that lets you use the death benefit to pay for long-term care expenses. Other riders provide access to the death benefit to pay costs associated with a specific disease, such as cancer. Talk to your financial planner about the options available to maximize your coverage.
Warnings
The amount of life insurance your husband should carry will change as his financial and family obligations change. Review your life insurance needs at least once every five years, or after a significant life change. These include births, divorces, college graduations, purchases of new homes, or significant reductions of debt. Remember that wives often contribute to a family's income, and your financial planning should include an evaluation of her life insurance needs.
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