If you died tonight, or if you became so disabled that you couldn't earn a living, what would your family do? How would they meet the mortgage payments, the car payments or pay the utilities, taxes and other bills? Perhaps they could convert your assets into income-generating investments. It can be done, but the result probably wouldn't replace your income.
Life insurance is one of the most effective tools for replacing lost income, as it can deliver a designated amount of money to your spouse (if listed as the beneficiary), generally income-tax-free, at the very time it is needed most. New York Life and its subsidiaries offer a variety of Permanent Life and Term Life Insurance that can help protect your spouse in the event anything should happen to you.
Make sure to review your disability income insurance* needs, too. If you become disabled due to a serious illness or accident, you risk becoming "economically dead" to your family. Disability income insurance can replace your income and help maintain your family's income stream. (* Disability income insurance available through one or more carriers not affiliated with New York Life, dependent on carrier authorization and product availability in your state or locality.)
How Much Is Enough?
The amount you need depends on the income you'd want your family to receive should anything happen to you. To figure out how much is enough, first calculate your net worth. Work up a financial statement of your assets and liabilities, and determine which assets after taxes would be available to provide income. Your New York Life agent can help you with this.
When estimating a ballpark figure of coverage needs, many people multiply their annual income by the number of years they want it provided. But there are other facts to consider:
- When factoring in existing coverage, be careful about including employer-sponsored insurance when calculating your needs. It may end with your employment if you change jobs, leaving you underinsured.
- Be wary of counting term life insurance when adding up your total coverage. Term insurance provides protection for a limited number of years. However, in some cases, it may expire or can be cost-prohibitive as you get older.
- If you have a child with special needs or a disabled spouse, you may need life insurance to provide lifelong income, not just for a limited number of years.
- If you have excessive debts or higher education bills on the horizon, you may need more coverage than the formula indicates.
- Taxes, appreciation, and inflation.
- If there are other sources of income available, your needs may need lower.
Investing Assets: Secure or Not?
Even investing substantial assets might not guarantee your family's financial security for life. Here are two reasons why:
- Not all assets are liquid, capable of generating income. It may not be practical to convert your home, autos and other possessions into income-generating assets.
- Inflation is still a long-term consideration that should not be ignored. Even at an average 4% annual rate, inflation will reduce the purchasing power of a dollar to 50 cents in 18 years. As the chart below indicates, should inflation return to the levels of the early 1980s, purchasing power would decline even more rapidly.
Purchasing Power and Inflation
|Inflation rate||When purchasing power of $1 becomes 50 cents|
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|Life Insurance and the Single Parent|