Life insurance policies provide additional income to your beneficiaries in the eventuality of your death. While the amount and type of the life insurance policy can vary, most life insurance policies aim to cover any health care-related, legal or funeral costs as well as help support beneficiaries who may otherwise struggle without your income. Therefore, it is important to consider how much life insurance you may need to provide for your family and loved ones.
Considerations
To consider why you might need life insurance, you should ask yourself several questions: How much will the burial cost? For how long would your loved ones need your salary to stay financially stable? Do you have children or other dependents that will have college expenses? You also should consider additional one-time expenses, such as weddings or a home purchase or renovation project, as reasons why you might need life insurance.
A Policy to Meet Your Needs
Because your beneficiaries will ultimately rely on your life insurance policy as a means to sustain their standard of living, it's important to select a life insurance policy that matches your potential needs. Your policy should carry enough value that it will last your dependents through their college years or until your retirement funds are able to be withdrawn.
Do I Need Insurance If I'm Single?
Many single individuals who do not have dependents may wonder if life insurance is a necessary expense. The answer is that you do need life insurance (or some other significant form of savings), but you may not need as much as you would were you to have dependents. Your insurance should cover funeral costs and any taxes that may come with owning your own home.
Additional Uses
In some instances, a life insurance policy is not just for when you pass away. In cases of emergency, it can be used for medical, legal or funeral expenses for you or your family. For universal or variable universal life insurance policies (these are general and popular forms of life insurance that can specify to which areas of expense they can be distributed to), you can withdraw up to the amount of the premiums you have paid up to that point. These withdrawals can often be taken out tax free (although any earnings you may have experienced would be taxable).
Types
There are several different types of life insurance policies available. While the best way to determine the ideal selection for you and your dependents is to consult an insurance professional, a basic understanding of the policies will help. Consider that term life insurance is insurance that pays the agreed-upon amount to the policy's beneficiary. A person can purchase term life insurance for a period of one to 30 years. A whole life insurance policy offers both the insurance component as well as an investment component. While the policy will build value over time, the earnings are taxable and may not earn at a higher rate than a retirement policy or other investment.
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