Life insurance is a major type of insurance that you can buy, but not everybody needs protection. It is important to look at the reason that people have this protection before you actually decide you need life insurance.
Purpose of life insurance coverage
The concept behind life insurance is very straightforward. Life insurance provides protection in the event of your death for your family members. Life insurance is payable upon death, and money can help the surviving spouse and minor children pay their bills and move on with their lives.
The amount of life insurance you need depends on a variety of factors, including your wages, assets and the amount your beneficiaries need to sustain their established way of living. You may need a million dollars or more life insurance if you receive $100,000 a year and have a couple of kids attending college. You might not need as much life insurance if you have a big nest egg, say several million dollars. This is because the savings you are leaving behind will produce income from your spouse and children and make them less dependent on a large life insurance payout.
If you’re young and just starting out, you may not need life insurance. Recall that life insurance seeks solely to cover those who depend on your income. If you’re single and don’t have children, you probably don’t even need life insurance.
The exception is if you care for an elderly parent. In this situation you would want to maintain a $100,000-$250,000 life insurance to have the help they need once you are gone. You would also want to look at your parents’ long-term care plans as well as life insurance coverage.
Term Life vs. Whole Life
Life insurance is a quite easy purchase, but the industry has tried to complicate things over the years. Many insurance agents will guide you on life insurance policies that combine investment with insurance coverage. This may sound like a clever tactic at first blush but it turns out, having a life insurance policy and a savings nest egg can take care of all of your needs and assure that your family and loved ones are taken care of during that time. Compared to term life coverage, the premiums for whole life coverage can be higher, and the investments are always challenging and often costly. Most individuals would be better off buying a term life insurance on a relatively cheaper term than making their own savings.
For example, if your life policy costs $100 per month and you can get a similar $20 life policy,take $80 extra that you would have spent every month and put it in your 401(k) job or good mutual fund stock. Over time, your savings account will have a lot of money and you still have your life insurance coverage.
How much coverage for life insurance do you need?
How much coverage you need in life insurance would depend on your family condition, assets and expenses. But it can be difficult to determine which amount is right for you and your family. You can find insurance companies and authority pages that inform you individually and firmly about how to measure. Below are three of the simple equations for determining how much coverage to buy life insurance. Choose the one that is most appropriate for you and the needs of your family.
The Mortgage Formula
This calculation takes into account the house mortgage and each parent ‘s current working status. You want life insurance coverage with a parent working full-time that is two times as high as the amount owed on a home loan. If the mortgage was $250,000, for example, for each parent who works you want at least $500,000. When a parent passes, then the mortgage is paid and additional cash is available.
You may only need half that to the non-working parent if one parent does no longer work outside the house. This is $250,000 in the above case. The hope is that the surviving parent has a full-time job which will pay for the mortgage, and extra cash out of the insurance fund is used for day care and other child-raising expenses.
Formula for income replacement
This basic formula multiplies the gross annual income by at least 10 years, to the amount of years before retirement. You need a policy that pays between 0.5 and 1.75 million when you die, whether you have a $50,000 or 30 years old and decide to retire at the age of 65.
Line Item Formula
Most insurance experts say it’s the most precise calculation to write down and add any estimated cost together, but it takes some time to determine. There is an accurate estimate of your family’s basic costs if you die today. You need to add up the estimated expenditures such as mortgage payments, everyday living expenses, education, childcare, medical and all other predictable expenses for the next few decades to make this estimate.
An insurance broker can work with you on different formulas to decide how much insurance you need. You would also need to know how much of the life insurance premiums you will pay each month. The higher the coverage, the higher the monthly or annual fee.
What’s Cheaper Cremation Or Burial ?
These days, the majority of people select cremations over conventional burials due to the fact that it’s more cheaper and cost effective. Cremations are the most economical way of caring for a loved one. Associated costs such as, visitation and funeral services are usually avoidable when doing a cremation. The total cost of cremation is between one and two thousand dollars and, of course, in some parts of the world you can have it for less than $800-$900 and more in other parts of the country.
The NFDA reports funeral rates every couple of years, and the median price for a funeral was $7,640 in 2019. For 2016, this is up from $6,560. This expense covers the most common services requested by families from funeral homes such as embalming, a metal casket, use of funeral home facilities for the viewing and remembrance ceremony, and transportation of the body to the cemetery by hearse.
Many of those programs are free, such as embalming and consultation. The Federal Trade Commission mandates funeral homes to include price sheets in person and price quotes over the phone for all of their services; calling around to various funeral homes in your area can often save thousands of dollars on the same services.
There are several cemeteries that allow you to buy a vault along with the grave plot. For a plot in the cemetery and the grave opening and closing services, families can expect to pay at least $2000. Choosing an intricate casket will add several thousand dollars to your costs.
Can You Have An Open Casket And Then Be Cremated ?
Many people don’t know that if you chose a traditional burial or a cremation, you were always entitled to a meaningful ceremony or life celebration for babies and allowed to have it. You may have what we call a full cremation where the body is present for a traditional viewing and funeral in a proper casket and you go to the crematorium instead of going to the cemetery. If the cremation takes place after a typical funeral service, you can purchase a service casket that can act as the container for the cremation. A container that is cremated should not have metal parts, so the container must be all wood, fabric-covered wood or an equivalent material.
If you don’t want to buy a costly funeral service coffin, you can rent a funeral service casket and then cremate the body into a plain cardboard container (known as a “alternative coffin”). Most funeral homes have rental caskets available; if you intend to rent a funeral service casket, make sure that the funeral home in which you work with will provide you this cost saving feature.
Term Life Insurance is a coverage policy for a fixed duration. The duration of life insurance policies varies from five to 30 years in general. Since term life insurance plans only offer coverage for a fixed period of time, term life insurance is far less costly than whole life insurance, which offers a guaranteed death benefit regardless of the death of the insured. Another explanation why term life insurance is so cheap compared to life insurance is that many life insurance policies have an investment account which adds to the policy ‘s cost. While some people benefit from the investment part of a whole life insurance policy, most people would benefit more from maintaining separate insurance and retirement accounts.
Not only is term life insurance the least expensive form of life insurance, it is the safest type of life insurance for most people. Term life insurance provides cover during the most important years of financial need for a person’s family. For instance , a person with young children can purchase an insurance policy that offers coverage for 20 years easily until the young children have developed into adulthood and are no longer dependent on the parent to receive financial assistance. The insured person will also have time to pay off mortgage and other obligations over this 20-year period, and accumulate retirement funds that will further minimize his or her life insurance needs.
Term life insurance plans are usually a fixed term , meaning that the premium for the duration of the policy does not change. Most plans on term life insurance are adjustable plans. The insured person is thus able to convert the term policy to a full whole life insurance policy at any time. The biggest benefit of convertibility is that, even if the insured has health conditions that would otherwise preclude a person from being entitled to coverage, he is eligible to collect full life insurance. This conversion can of course result in a higher premium as the insured person grows older. In general, an insured person with a term life policy may also extend the duration of the original policy in all circumstances at any time. For certain insurance companies, life insurance premiums are also rising and declining. To satisfy the needs of the insured group, the death benefit of these policies rises or decreases over time.