If you were to die unexpectedly, would anyone in your life be financially impacted? If the answer is yes, you might want to consider a life insurance policy. Final expenses, including the cost of a burial or cremation, can cost a family upwards of $10,000. Many people dedicate a portion of a life insurance payout to covering these costs. Some other common uses for a life insurance payout include:
- Paying off debts
- Making mortgage payments
- Paying funeral costs
- Setting up an inheritance
- Paying estate taxes
- Paying medical bills
- Maintaining a certain standard of living
Life Insurance Policy Options
Term life insurance covers the policyholder only for a predetermined amount of time, typically 5-40 years.
Universal Life Insurance is a type of cash value life insurance that offers the low-cost protection of term life insurance with the savings element of whole life insurance.
A whole life insurance policy will cover you for your entire life and can be useful when paying for all the expenses that arise when someone passes, such as funeral costs, estate planning, medical care and financial protection for the surviving spouse.
Variable life insurance is a form of permanent life insurance where the cash value is invested in a number of sub-accounts, similar to mutual funds.
How Much Coverage Do I Need?
You can purchase a life insurance policy with a payout as small as a few hundred dollars and as large as a few million dollars. How much life insurance you should buy depends on what financial burdens your loved ones will have once you’re gone, as well as how much you can afford in monthly premiums.
Financial professionals will often recommend purchasing a policy for eight to 10 times your annual income, but the exact amount you need depends on several different factors, including your current savings and total outstanding debts.