Life Insurance - Who Should Have It and How Much Should You Have
We have all heard the horror stories. A young man or woman dies suddenly, leaving behind a spouse and kids - and they have no life insurance. These poor families can hardly pay for the funeral and frequently they have to raise money just to cover that expense. How will they go on without their loved one - and their income to support them? Life insurance is the answer, but unfortunately most people don't have any. Let's take a look at who should have life insurance and how much they should have.
The most important thing to consider is whether you have people dependent on you and your income. Do you have a spouse and kids? They will need financial help to continue your current lifestyle without you. In fact things could get more expensive for the surviving family members.
I will use myself as an example. I am a stay at home mom to four kids. A few years ago we invested in life insurance for me. We had to argue with the insurance company a bit in order to get it approved because they didn't see the point in having insurance on someone who doesn't bring in an income. But there is more to it than that. For my husband to be able to continue working it would require a good bit of daycare - something that is very expensive but we don't need if I stay home. Right there you have over $1000 a month he would need to cover.
Something else to consider is how one person can handle all the responsibilities of two people. Running a home and keeping up with the kids, the bills, the food, etc. is not only time consuming but expensive. We figured if he were working full time and the only parent to four kids he would not have the time to live as frugally as we do right now, he would not have time to cook everything from scratch, and he might not even have time to clean the house very well. This results in money needed to accommodate the things that he wouldn't be able to do without me. So we got life insurance on me in case something happens.
Essentially life insurance is for the people left behind. If you have children and want to provide for them as they grow up, even if you aren't around, then you need life insurance. Think about what you want for your children? Do you only want to provide the essentials until they are 18, or would you like to make sure they can go to college debt free as well? This will impact how much life insurance you need to get.
Another thing to consider is the age of your spouse and children. If your children are grown and your spouse works full time and could support themselves on their income alone you might not even need life insurance. If you have hundreds of thousands (or possibly millions) of dollars in the bank, you probably don't need life insurance.
If you have no dependents then you don't need much life insurance. Some would argue that you don't need any but I disagree unless you have a lot of savings. Funerals are expensive - $10,000 or so for a mid-range one. This could be a burden on whoever might be burying you (possibly parents or adult children). I think everyone should have at least $10,000 in life insurance to cover their funeral.
The "experts" frequently say that you need ten times your annual salary in life insurance. Personally I think there are too many variables to look at to make that blanket statement. Yes it is a starting point, but you need to think about what that money will need to cover for the people that are left behind. You might need much less than ten times your salary or much more. Figure in all the factors that I have mentioned here to determine what is best for your situation. But whatever you do - if you have any dependents at all - make sure you have life insurance to help them as they grieve for you. Worrying about how they will pay the bills is the last thing they need to think about at that time.
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