While most people need life insurance at some point in their lives, don't buy a policy just because you heard it was a good idea.
Life insurance is designed to provide families with financial security in the event of the death of a spouse or parent. Life insurance protection can help pay off mortgages, help provide a college education, help to fund retirement, help provide charitable bequests, and, of course, help in estate planning. In short, if others depend on your income for support, you should strongly consider life insurance.
Even if you don't have any of these needs immediately, you still may want to consider purchasing a small "starter" policy, if you anticipate you will have them in the future. The reason: The younger you are, the less expensive life insurance will be.
The amount of money your family or heirs will receive after your death is called a death benefit. To determine the proper amount of life insurance, online calculators can be helpful. You can also get a ballpark figure using any number of formulas. The easiest way is to simply take your annual salary and multiply by 8.
A more detailed method is to add up the monthly expenses your family will incur after your death. Remember to include the one-time expenses at death and the ongoing expenses, such as a mortgage or school bills. Take the ongoing expenses and divide by .07. That indicates you'll want a lump sum of money earning approximately 7% each year to pay those ongoing expenses. Add to that amount any money you'll need to cover one-time expenses, and you'll have a rough estimate of the amount of life insurance you need.
As useful as calculators and rough estimates are, there are some things they don't do.
They cannot provide you with any 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 professionals like a New York Life agent.
You can use any number of planning tools to get an idea of the amount of coverage you'll need for your policy. Use our online calculator, for example, or use a formula to figure out how much you need. An easy place to start is by multiplying your annual income by the number of years left before your retirement benefits kick in.
Once you figure out how much coverage you'll need, you can think about the best kind of policy to meet your needs.
You have two main options: term life, for a more affordable premium, or permanent life, for more comprehensive coverage that can add cash value. But you have a lot of options to explore.
An insurance policy is only as good as the company that backs it.
You want to make sure you choose a company you can rely on to be around for as long as you'll need your coverage, and one that invests premiums in a highly prudent manner in order to pay the claims of its policyholders.
A financial professional can help you factor in your financial considerations, your needs, and your family's needs.
Life insurance can be confusing, with terms like "premium," "dividend," "beneficiary," and many more.
We have put together a glossary of these terms to help you understand this whole process better.