Life insurance can protect your family and help them with expenses in the event of your death. Choosing the right life insurance policy can be confusing. Here are some tips to help you decide if you need life insurance, how much coverage is right for you, and what type of policy to choose.
The purpose of life insurance is to provide financial support after your death for a spouse or children who rely on your income. It can help pay for living expenses, such as a mortgage, as well as college tuition, retirement, or a charitable bequest. Not everyone needs life insurance. If you don’t have a spouse or children who rely on your income, you probably don’t need a policy.
A death benefit is the amount of money your family will receive from the policy if you die. You can use an online calculator to help you decide how much coverage you need. One rule of thumb is to multiply your annual salary by 8.
There are two main types of life insurance policies: term life and whole life. A term life policy lasts for a specified number of years. If the policy expires before you die, no one receives the death benefit. Whole life insurance lasts from the time you buy the policy until the time of your death, no matter how long a period of time that is. A whole life policy costs more because the term of coverage could last several decades. A whole life policy can be borrowed against at a specified interest rate.
If you have children who you expect will be able to support themselves when they become adults, it might be better to choose a term life policy that will expire when they reach an age when they will be financially independent. If your dependents will have ongoing needs for the rest of their lives, it might make more sense to choose a whole life policy.