What to Consider When Buying Life Insurance

Most adults with families need life insurance. If you have children or a spouse, then chances are fairly likely that there is someone out there that benefits from the things you do. If you have a job and earn a paycheck, there are people that depend on the money you earn. If you stay at home and take care of any children or clean the house, there are people that depend on the work that you do. Although single adults might not have anybody that depends on their work, someone will have to pick up the cost of their funeral. When someone dies, families are left with the loss of income or extra expenses. Life insurance helps a family recover financially when a family member dies. But how much life insurance should you get? That all depends on what you want to replace after your death, and for how long.

Replacing Income

You may want to get life insurance to replace income. If you want your spouse to be able to replace your income indefinitely with life insurance, you may want to get around 20 times the amount you want them to be able to live off of. You also might want to include money to pay off the mortgage and send the kids to college. If that amount seems a bit steep, you could plan on purchasing enough money to replace your income for a specified period of time, such as when the kids are all in school, or when they graduate. In that case, you may want to purchase a smaller policy, but it still will probably be several times your annual salary.

Replacing Services

Just because someone doesn't work outside of the home doesn't mean that what they do isn't valuable. In fact, if you were to hire someone to come in and do the job they do, it would cost quite a bit of money. If your spouse dies, you might want to hire a housekeeper to come in and clean the house on a regular basis, at least for a while, so you can readjust to life. If your spouse normally watches the children, you will also have to pay for the cost of day care, or hire a nanny to come in. Sending your child to day care is probably less expensive than hiring a nanny, but the day care won't take your child to swimming practice and soccer games. In order to find out how much life insurance you would need, find out how much the services that you want to replace are going to cost. If you only need to replace these services for a few years, multiply the cost by the number of years you are going to need it. If you want to hire a maid to come in for the rest of your life, you'll want to multiply the cost of a maid by a larger number.

Final Expenses and Burial Costs

Everybody needs to be buried. You will want to include some money in your life insurance policy for burial. Even if you are single, you will want a small life insurance policy to pay for these costs.

Who Doesn't Need Insurance?

Some people do not need insurance. A single person without dependents would probably not need insurance if they had a large enough savings built up to cover bills and burial expenses. Retired people also probably don't need insurance if they have enough in savings to pay for their burial. At any age, if you have saved up a large enough nest egg, you might not need to purchase insurance at all. If you figure out the amount of insurance money that you normally would need, and your investments, retirement plans, and savings accounts are greater than that amount, you probably don't need any insurance. If you have a significant amount of money in your nest egg, but not quite that much, you may be able to purchase less insurance and still be fine.