If you've never purchased a life insurance policy before, the prospect of doing so can seem overwhelming, but it doesn't need to be! By understanding the basics, you can prepare yourself to shop for the right policy with confidence.
Who needs life insurance?
If you have dependents in your life—that is to say, if you have children, a spouse, or elderly parents who are dependent upon your support—then you need life insurance. Purchasing a life insurance policy for yourself will protect your dependents from the financial burdens they may encounter should something happen to you.
So do I only need life insurance if I earn a wage?
No; being a wage earner is not the only grounds for requiring life insurance. Certainly, if you have an income, then this is the most obvious item for you to insure. You want to make sure that your family's current financial needs are met even in the face of disaster. However, if you examine your current lifestyle, there are probably other things you are doing that, while not necessarily generating an income, still have monetary worth. For example, if you are a stay at home mom or dad looking after your children, you are providing your family with a service that would need replacing should anything happen to you. How much would full time child care cost in such a case as this? This is something to consider. Similarly, if you are looking after a relative with special needs, what would it cost to hire somebody to carry out the same tasks that you are carrying out right now? In summary, you need to consider your contribution to your family both in the wages you bring in, as well as in the other supports that would need to be outsourced if you weren't providing them.
How much life insurance do I need?
This is a question that often leaves people feeling more overwhelmed than they should. In point of fact, determining the answer to this is relatively simple, and really just requires for you to give close consideration to the following factors:
- how much debt you currently have
- what your monthly spendings are
- what your monthly savings are
- what amount of income your dependents will need in your absence
Once you have taken these factors into consideration to draw up a rough figure for the sum of money your family will require in a year, multiply that by the number of years remaining before you turn 65. Of course, this will give you a rough idea only. Meeting with your insurance provider, having prepared all of this information in advance, will give you the best fit for your family.
When should I buy life insurance?
The sooner, the better...and this isn't just the industry's answer to get more people spending on insurance; quite the opposite. You'll actually spend less on life insurance by starting young than you will if you wait until you actually need it—significantly less.