For many people, life insurance can be very beneficial. It’s generally considered to be a smart financial move that provides peace of mind and material security for yourself and your family.
However, anyone who begins the process of researching life insurance will quickly learn that it is overwhelming. Not only are there countless varieties of life insurance plans available, but you may begin to worry that you don’t have enough to warrant investing in it in the first place.
You may have heard it said that you should purchase life insurance that is 10-12 times your income, and this typically is a good rule of thumb. However, everyone’s individual circumstances will vary, both in regards to their income, their outstanding debt, and their number of dependents.
No two situations are exactly alike, and what works for one person might not be the best option for you. This is why it’s important to do your research before jumping into a life insurance plan.
Your personal and financial circumstances
How much life insurance should you have, based on your current income? You can follow the “10-12 times your income” rule, or you can simply calculate how much you’ll need to replace your income and all of your dependents’ expenses. It’s not as complicated as you may think, although the life insurance calculators commonly found online might convince you otherwise if you have a distaste for doing math.
The reality is, the easiest formula to follow involves subtracting your resources (in other words, income and assets) from your financial obligations. The number you come up with is the recommended payout, known as a death benefit, which will enable your loved ones to live comfortably should you pass away unexpectedly.
For many people, this does fall somewhere in between 10-12 times their income. However, other people choose to purchase an additional financial cushion, out of preemptive concern for their loved ones: to plan for their children’s higher education, for instance, or to cover the increasingly high cost of a funeral today.
Why buy life insurance?
Every time we make a large purchase, such as a car or a home, we understand the necessity for insurance protecting that liquid asset. Even when taking an international trip, it is considered wise to pay an additional fee for travel insurance. In these circumstances, it’s fairly easy to decide when and if to buy insurance.
However, life insurance is a little trickier, and not only because it’s generally an unpleasant and occasionally taboo subject to discuss. After all, you must confront your own mortality and face the reality that you won’t always be around to help out your spouse, children, and grandchildren.
The long-term advantages
In the case of car, home, and travel insurance, the person at risk of immediate financial loss is you, whereas in the case of life insurance, you must think ahead to the long term. When you are young and unmarried, it is less common to think about life insurance or see it as a necessity. However, once you tie the knot, have your first child, or hit a milestone birthday, you might find yourself thinking about it more often.
It is a misconception that life insurance is only for the retired and aging. In fact, there is no wrong stage of life to think about life insurance. If you are married, you should discuss life insurance with your spouse. If you are a parent, it is even more important to look at your options.
You can find the best life insurance policy using third party services. iSelect can narrow down the many types of life insurance so that you can find the one for you.