Assessing your life insurance needs

Some people see life insurance as an investment, some see it as a protection for loved ones and some don’t want to think about it.

There are some potential investment options for life insurance. But here we’re just going to look at the pure insurance aspects of it.

A basic reason for life insurance is to protect those who depend on you from financial loss if you die. For many of us, that means that we’re in the workforce and our family depends on our paycheck.

Having an amount of insurance that could be invested to replace our income for as long as we plan on working is a responsible financial move for breadwinners in a household.

If you’re in your 20s or 30s and have young children, you might get a long-term policy for a relatively sizable amount.

As you get older, you might be able to cut back on the amount of insurance since you have less time left in your career. Another reason you can cut back is that children grow up and become financially independent.

These evolutions in your life insurance needs might be met by several term policies or a plan to lower the coverage amount on one policy as your circumstances change. A good insurance agent can help you set up an insurance plan that meets those needs.

It’s also important to get good insurance coverage on a primary parent who is not working or not the primary earner in the family.

Child care, meal prep, chauffeuring kids to activities and maintaining the household is a lot of work. And while the person doing those duties now doesn’t get a paycheck for them, you’d have to pay a non-family member a lot of money to do those jobs.

There might also be needs for life insurance in retirement. If one of you has a retirement check every month from a former employer, you can look at the cost of an insurance policy to cover that amount if the retiree dies and compare that to how much it lowers the monthly payment to choose a survivor benefit on the retirement benefit.

In some cases, the survivor benefit deduction is less expensive than life insurance. Exploring this several years before retirement is a good idea since insurance premiums might be higher if you get the policy in your 60s as opposed to your 50s.

Another factor is that life insurance proceeds are not generally subject to income tax.

So if you’re replacing taxable income, such as wages or a pension, you’ll only need to have enough life insurance to replace the after-tax benefit.

Some folks have the attitude that you can’t have too much life insurance. It’s good to be properly insured, but you don’t need to be over insured. None of us should be worth more dead than alive.