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The Dollars and “Sense” of Protection


If you’re like most people, you’ve worked hard over the years to accumulate assets and achieve your family’s current standard of living. As a result, you probably take important steps to protect your valuables and other tangible assets. Certainly, most people understand the value of automobile insurance, homeowners insurance, and additional insurance coverage for items or collections of significant value. While tangible assets such as cars, homes, and jewelry may be worth a considerable amount of money, their income-producing value is often negligible. In this respect, your true wealth, and perhaps your greatest asset, is your future earnings potential.

If you’re the main provider, your family may depend on you to make mortgage payments, save for retirement, and fund your children’s education, in addition to maintaining your current lifestyle. While you may be comfortable with the insurance coverage you have in place for your most important tangible assets, have you considered the amount of insurance coverage you have in place for something a little less tangible—namely you? With this in mind, let’s take a closer look at how you can estimate the financial needs of your family in the event of your death.

Suppose you’re 35 years old, earn $50,000 per year, and have $100,000 of life insurance coverage. In addition, you and your spouse have calculated that you’ll need to work for 30 more years to meet your financial goals and objectives, which include paying off your mortgage, sending your children to college, and building adequate retirement savings. If you multiply your current earnings by 30, you get a very rough estimate of your future earnings—$1,500,000.

Don’t let this figure startle you. It’s not how much life insurance you need. However, it does give you an indication of the important impact you have on your family’s ability to meet its financial goals. There are a number of factors that need to be considered to objectively determine an adequate amount of life insurance coverage.

The first point to consider is whether your life insurance proceeds are sufficient to help pay the remaining mortgage on your home. In addition, many parents want life insurance proceeds to help cover their children’s future college expenses. The amount needed can be roughly calculated by matching the ages of your children against projected college costs adjusted for inflation. Next, consider your spouse’s income and whether it would be sufficient to cover the monthly expenses of your family’s current lifestyle. Providing a supplemental income fund can help your family maintain its standard of living. Finally, life insurance can help provide liquidity at death to pay estate taxes and maximize asset transfers to future generations.

As you develop an insurance strategy, remember to assess your existing policies. Calculate the additional coverage you may need based on your family’s financial obligations and any other resources, such as retirement benefits and savings. Before you crunch the numbers, it’s important to realize that determining life insurance needs is not as simple as it may appear. There are many factors and calculations that must be taken into consideration to objectively assess your needs. Therefore, it’s important to consult with a qualified insurance professional to help ensure that you have an appropriate amount and type of coverage.

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Posted on 5 October '11 by gedwards, under Life Insurance, insurance quotes, life insurance quotes, term life insurance.