The Essential Benefit of Life Insurance

We all know of the unexpected young death of someone whether it is a family member or friend.  The tragedy of losing a friend or loved one is made worse if the loss of income the person provided his or her family has not been planned for.

Photo of the Life game dialWhile the overall rates charged by life insurance companies have been coming down through the last several years, surprisingly the amount of people covered by life insurance has decreased. The recession has taken a toll on many, as both individuals having less money to go around and employer-provided coverage declining due to cuts in employee benefit packages according to a study produced by Swiss Re Group.

In 2010, families  whose primary breadwinner was under the age of  55  had $32 – in net assets and life insurance in place – for every $100 of protection needed, which is down from $46 in 2001, according to the same data from The Swiss Re Group.

However, all of us should think about this unlikely event.  What would the family do if the person generating the income for the family died?  What would the family do for income?  The shortfall needs to be covered by life insurance or a plan needs to be in place to generate the missing income.  Generally, we start by determining the yearly income needed –  less any benefits or additional sources of income that will be received or generated.

As a ballpark figure, a million dollars in life insurance proceeds can be invested to provide approximately $45,000 in annual income.  So what is your shortfall, if any? I know many who think the $250,000 life policy will provide coverage falling to realize that this sum would only provide approximately $11,000 a year in income.

The need for this insurance is generally for a limited time period, such as, until the children are through school.  With the limited time period, term insurance is likely the best and most affordable coverage.  The “term” or length of coverage can be 10 years, 20 years, or longer depending on the need for coverage and the health of the insured.

The time to explore coverage is always while you are young and health as the rates charged on underwritten to your health.  The increased longevity of Americans has allowed more persons to be eligible even at older ages.

So what is your plan for mortality protection?  Is someone relying on your income to support their lives?  How will they provide this income if you were to die prematurely?  It is easier and less expensive than you think to provide this coverage either at work or with an individual policy.  Because unlike the game of “Life”, you do not get a re-do on failing to plan for this eventually.

 

 

About Maureen Crimmins

Maureen Crimmins is co-founder of Crimmins Wealth Management and a fee-only independent financial advisor. Have a financial question? ASK MAUREEN

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