6 Things to consider when buying life insurance.
1. Why you need life insurance?
Most of us need life insurance at some point in our lives. But don't buy a policy just because you heard it was a good idea. Life insurance is designed to provide your family with financial security in case you, your spouse, or a parent passes away.
Life insurance can help pay off your mortgage, help with college expenses, help fund your retirement, and help with estate planning. If you have loved ones who depend on your income for support, you should strongly consider getting life insurance. Also, the younger you are, the less expensive life insurance will be, so even if you don't have an immediate need you may want to consider purchasing a "starter" policy for the future.
2. How much coverage should I buy?
- You can use any number of planning tools to get an idea of the amount of coverage you'll need for your policy. The easiest way is to simply take your annual salary and multiply by eight.
- Another way: Multiply your annual income by the number of years left before your retirement benefits kick in.
- You can also add up the expenses you think your family will incur after your death, such as a mortgage, school bills, and car costs. Then take your ongoing yearly expenses and divide them by 0.07. That translates to you needing a lump sum of money earning approximately 7% each year to pay those ongoing expenses. Add to that amount the money you'll need to cover one-time expenses at death, and you'll have a rough estimate of the amount of life insurance you need.
- And of course, you can also use our life insurance calculator to help you determine how much protection you may need.
As useful as calculators and rough estimates are, they cannot provide you with final answers. Calculators only allow you to perform "hypotheticals," recalculating and generating new results as you make and input new assumptions.
Using these tools and educating yourself on the workings of life insurance and other financial products, however, can help you feel more comfortable when discussing your needs with a financial professional like a New York Life agent.