Life Insurance – How do you know what you need?
While life insurance is not fun, it may be necessary for the good of your family. One popular simple guide to help you decide how much life insurance you need uses the acronym “DIME”. Add these four categories together to help you determine the total amount of life insurance right for your family.
D – Debt How much debt do you have? The amount you owe is passed on to your family. This amount should also include funeral expenses as well as credit card, car payments and student loans
I – Income One of the main purposes of life insurance is to provide your family with income. Many people multiply their yearly income by the number of years until their youngest child is 18.
M – Mortgage The remaining balance of your mortgage loan should be included to make sure your family does not face the hardship of losing their home.
E – Education If you have children, include the cost for their college education. Figure a minimum of $100,000 for a four year degree for a state school for tuition and dorm fees. The cost will be more if you are considering private or out-of-state schools.
There are a number of options for the type of Life insurance that best fits your needs. Two of the most popular are:
Term Life Insurance Term life insurance covers you for a specific period of time, or term, that you choose. When the time period is over, it expires similar to an auto insurance policy. This can provide an inexpensive way to protect your beneficiaries. Variations include guaranteed renewal plans or options to convert to another type of policy. It’s important to remember that rates generally increase along with the insured’s age.
Permanent Life Insurance These policies provide a lifetime of coverage and build up cash value that remains available to the policyholder. Permanent policies include Universal and Whole Life Insurance. This is the most cost effective long-term option because of stable premiums and the availability to access money invested in the policy.
Many people benefit from a combination of Term Insurance to cover higher debt when they are young and Permanent Insurance to keep rates low with age. Contact the experts at Cobb-Hall Insurance to assist you with your decisions.