For most people, the purpose of life insurance should be to replace the financial contribution made by a family member. Life insurance can be pure insurance, which pays only on the death of the insured, or cash value insurance, which also has a savings vehicle. Most people who need life insurance are better off with pure insurance and saving for retirement through other vehicles.
Proceeds from life insurance cover three types of expenses: replacement of the policyholder's income or work, estate taxes, and burial costs. When you consider the amount of insurance to buy, consider the following:
1. Most of the life insurance should be on a family member whose salary is important to the family budget.
2. Consider a relatively small life insurance policy on a stay-at-home parent to cover child care and other expenses.
3. Don't buy life insurance on children. Instead, buy life insurance on other family members for the benefit of children.
4. Consider reducing the amount of life insurance you have as you build more financial assets.
5. Pass on credit life insurance and mortgage life insurance if you can. These plans are restrictive and expensive. Buy more general life insurance instead if you feel a need.
6. Pass on life insurance altogether if you are single and don't have anyone depending on you. At most, get a small policy to spare your family burial expenses.
You should buy about 12 times the amount of money you would need annually to replace what the family member is contributing. For example, if you would need $40,000 a year to replace the death of an employed member, you would need a $480,000 (rounded to $500,000) policy.
Proceeds from life insurance cover three types of expenses: replacement of the policyholder's income or work, estate taxes, and burial costs. When you consider the amount of insurance to buy, consider the following:
1. Most of the life insurance should be on a family member whose salary is important to the family budget.
2. Consider a relatively small life insurance policy on a stay-at-home parent to cover child care and other expenses.
3. Don't buy life insurance on children. Instead, buy life insurance on other family members for the benefit of children.
4. Consider reducing the amount of life insurance you have as you build more financial assets.
5. Pass on credit life insurance and mortgage life insurance if you can. These plans are restrictive and expensive. Buy more general life insurance instead if you feel a need.
6. Pass on life insurance altogether if you are single and don't have anyone depending on you. At most, get a small policy to spare your family burial expenses.
You should buy about 12 times the amount of money you would need annually to replace what the family member is contributing. For example, if you would need $40,000 a year to replace the death of an employed member, you would need a $480,000 (rounded to $500,000) policy.
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