Life Insurance FAQ
- Q.How Much Life Insurance Do I Need?
- Q.Is Life Insurance Taxable?
- Q.When Should I get life insurance?
Q.How Much Life Insurance Do I Need?
Life insurance can be tailored to your specific needs, taking into account your family’s financial picture and your future financial security. The amount of life insurance you need depends on your goals, your family, and the expenses you want your family to be able to cover once you are no longer there to support them.
Here are three separate scenarios to consider:
- If you simply want to cover your end-of-life expenses and funeral costs so that your family is not burdened by these expenditures, you might want to buy a small term life policy, such as $10,000 to $20,000 worth of coverage.
- You would want to choose a larger life insurance policy if you have dependents and you are the primary income earner for your household. People with dependents often buy term policies in amounts ranging from $500,000 to $2 million or more to ensure that their dependents’ needs will be met. Add your family’s cost of living, your personal and household debt and the projected costs of your children’s education as a starting point to determine the amount of coverage you need.
- If you want your life insurance policy to accrue value and work for you or for your family as an investment vehicle, you might want to buy one of several different types of permanent life insurance. In this case, you have several different options. For example, you could purchase a $1 million term life insurance policy and begin converting over portions of the policy to a whole life insurance policy each year to build a growing cash account that will serve your needs in retirement.
Q.Is Life Insurance Taxable?
Life insurance proceeds are usually not taxable if they are paid to a specifically named beneficiary, such as your spouse or children. The life insurance proceeds may become taxable, however, if you name your estate as the beneficiary. At that point, the proceeds become a part of your estate, and can be subject to estate taxes.
Q.When Should I Get Life Insurance
Buy life insurance as soon as you determine that it makes sense for you or for your family. Waiting to buy life insurance is costly, as it becomes more expensive as you age. It is also easier to qualify for life insurance when you are young and have no health complications.
Many people buy life insurance as their circumstances change. When you get married, for example, you may consider purchasing life insurance in order to provide death benefits to your spouse in the event of your untimely passing. It is a good idea to evaluate your life insurance anytime you have experienced a change in your overall financial obligations.
For example, you may want to buy life insurance or increase your coverage under these circumstances:
- When you get married
- When you start a family
- When you buy a house
- When you start up a business
- If you accumulate personal debt
Life insurance can help to prevent the loss of your income and your debt accumulation from being passed on to your family as a financial burden after your passing
Your life insurance policy coverage should reflect these and other foreseeable financial obligations.