Last week our blog helped you answer the question “Who needs Life Insurance?” This week we’re answering the questions about how much you need and which types of policies to choose. Let’s get started.
How much do I need?
The rule of thumb is 5 to 20 times yearly income. The best way is to do a financial needs analysis:
|Immediate Expenses||Ongoing Expenses||Future Expenses|
|Uncovered Medical Expense||Housing||Retirement|
|Mortgage & other debt||Utilities|
|Estate Settlement Cost||Transportation|
Next add up your family’s resources, Spouse earning, saving, investments, life insurance + your current & future financial obligations including Spouse earnings, saving, investments, existing life insurance = the amount of Life Insurance needed.
What kind of life insurance should I buy?
The type depends on how long the coverage is needed and your budget.
Two types, Term and Permanent
Term is good for temporary needs and is affordable. The cost will increase with age and health. You may be uninsurable in future.
Permanent, the premium is level, often for life. Type are whole life UL, VUL, and IUL. May cost 3 to 10 times of that of term insurance.
Most people under estimate how long they will need life insurance. Life insurance can fill the financial gap between your financial needs and your financial reality.
So far, we’ve looked at life insurance from our personal needs. Life insurance is a tool used by almost every small business in America.
Business Uses of Life Insurance
. Fund a buy/sell agreement
. Buy time to replace an owner or key employee
. Equalize of inheritance
. Pay estate taxes
You're a Small Business Owner
Besides taking care of your family, life insurance can also protect your business. What would happen to your business if you, one of your fellow owners, or perhaps a key employee, died tomorrow?
Life insurance can help in a number of ways. For instance, a life insurance policy can be structured to fund a "buy-sell" agreement. This would ensure that the remaining business owners have the funds to buy the company interests of a deceased owner at a previously agreed upon price. That way, the owners get the business and the family gets the money.
To protect a business in case of the death of a key employee, "key person insurance," payable to the company, provides the owners with the financial flexibility needed to either hire a replacement or work out an alternative arrangement.
Dean and Draper
We hope that over the past two weeks, we have answered some of your questions about Life Insurance. Our Life Insurance expert, Jerry Linville, is available to talk with you about your Life Insurance needs, answer your questions, and help you select insurance that is right for you. Please contact Jerry Linville, 281-794-3783.
Dean& Draper is a Trusted Choice insurance agency representing over 200 insurance companies. For over 35 years we have offered a trusted freedom of choice to our clients. ContactUs.
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