How To Do Just About Everything
By eHow Health Editor
Rate: (32 Ratings)
You need life insurance if you think you will leave financial obligations behind when you die. Family obligations create financial obligations. Life insurance benefits can provide food and shelter for children and other dependents.
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Comments
Hadley said
on 4/21/2008 If you have a person / persons who rely on you for financial support, you may need life insurance.
For instance, if you have a spouse, children, or other relatives who you support financially, you may want to consider buying life insurance so if you die, the life insurance benefit can help provide support to those you leave behind.
choicearizona said
on 2/8/2008 http://www.arizonaautohomelifeinsurance.com/builderarizonacc/Scottsdale/index.php
If you are married or have kids, it's a definite. If you have someone in your life that you want to leave better off financially, then it's a definite. Nice job on the article. This maybe wasn't as easy as it sounds.
markcrosenthal said
on 1/8/2008 I would rename this. How much do you really need to buy. Everyone needs life insurance. The question is how much do you need.
Anonymous said
on 11/22/2005 Almost all of the financial advisors that I've talked to have advocated Term Life Insurance - never Whole Life. This is because the Return On Investment (ROI) for the cash portion of a whole life policy is typically far lower than other forms of investments. Keep in mind that life insurance is for others, in the case of your death. If you found yourself unable to work, for a short or long term period due to injuries, life insurance does you no good. If this is a concern to you, consider short- or long-term disability insurance.
Be careful when calculating the amount of life insurance you need. Getting a financial planner to assist you might be worthwhile. My suggestion, if you want to take a super-conservative approach:
1) Determine how much it would take to pay off all bills for which either you or your spouse are liable (including mortgage).
2) Determine what yearly income you would like your spouse and dependent children to receive yearly, for the rest of your spouse's life after your death (presuming they are debt free, since all debts would be paid off upon your death). [Optional: multiple this number by 1.x, where "x" is the anticipated percentage of tax that your spouse would pay upon receiving this income.]
3) Multiply the above result by 15 or 20, depending upon your budget for monthly insurance premiums (the higher the multiplier, the greater your insurance premium).
4) Add the results of [#3] to [#1].
5) Multiply the total by 1.x, where "x" is the anticipated percentage tax that your spouse will need to pay for the total lump sum received after your death.
6) The result would be the suggested amount of life insurance you'll need.
If you're a middle-class income American, don't be surprised if this figure exceeds $750K to $1 Million. The cost of such insurance, if whole life, is not cheap. That's why, among other reasons, you'll want to get term life insurance - 20 or 30 year level term.
Make it clear to your spouse (you may even want to place this into your will) that you want them to invest all monies not used to pay off debts, into an ultra-conservative investment with a guaranteed 5-10% return annually. Tell them they should never remove any of this originally invented money once it is placed in this investment. Your spouse and dependent children will live off of this interest for the rest of their lives.
Given that your spouse would have to pay taxes twice on the money invested (once when they receive the one-time disbursement, and again on the interest received over time from the portion of the one-time disbursement that was invested), and especially if you are suspicious that your spouse may not have the level of discipline and knowledge required to perform the above tasks with confidence after your death, you may want to consider trusts. Trusts would give you more control in advance of your death, as to what would happen to assets that you owned or controlled after your death. Using a trust (with the above) may allow you the ability to "put your plan on the rails" after your death. This will help to ensure that the above was executed properly after you passed away. Consider specifying the investment of those funds into tax-free or deferred investment vehicles to lower (or avoid) the tax burden on your spouse.
I'm neither a financial planner, a tax specialist, or a lawyer. I have no certifications of licenses along these lines. I'm just a layman. The above is provided as food for thought, and you use the above at your own risk.
Anonymous said
on 6/11/2007 If you are in your 20's or 30's, you are more likely to suffer a serious but non-fatal injury (and be unable to work for six months or a year) than you are to die. In fact, the effect of a serious non-fatal injury could be even more devastating than death. If you die, a funeral is a one time cost. A year of medical care will cost far more than a funeral. Talk to an insurance agent about getting a policy that will protect you if you are unable to work.