Bar News - December 17, 2004
Life Insurance: How Much?
From the NHBA Insurance Agency
This article continues a series of articles on life insurance coverage that began in the Nov. 19 issue of Bar News. For more information on all types of insurance, visit the NHBA Insurance agency page.
While the main purpose of life insurance is to provide financial security for your family when you die, permanent life insurance may also be used to meet a variety of long-term financial goals. It can help provide educational funds for your children or funds for your own retirement. The question for most buyers, then, is: "How much life insurance do I need?"
No two families have exactly the same needs or resources so you’ll find no hard and fast rules on the subject. No matter what your circumstances, however, there are a few things to consider when you buy life insurance, since the proceeds can be used with several goals in mind. For example, life insurance proceeds can help:
- Provide ready cash for final expenses, including funeral costs, medical expense, probate fees, and estate taxes
- Pay off outstanding debts: not only hospital bills, but perhaps a mortgage or an auto loan
- Provide replacement income in amounts necessary to cover:
- A readjustment period of two or three years after your death. If you are a two-income family, it takes time to adjust to one paycheck instead of two. If you are the sole wage earner, with young children at home, your spouse’s need for this readjustment period is obvious.
- The period while children under age 18 still are at home and dependent. (Social Security benefits that may be available may supply only part of your family’s income needs.)
- The college years, when Social Security benefits for dependents generally come to an end just as expenses grow.
- The years between the time the youngest child becomes independent and the time the surviving spouse reaches retirement age.
- The period after the survivor retires and receives Social Security or a pension.
In general, determining how much life insurance you need means deducting the sum total of the income that would be lost upon the insured’s death from the sum total of your family’s ongoing financial needs. It also means calculating the impact of inflation (usually assuming 4 percent per year) and building in enough "extra" to counteract inflation’s effects.
Speaking to an insurance professional can help you match up your needs with the available life insurance products.
The NHBA Insurance Agency is now offering life and disability coverage at discounted rates for NHBA members. Contact Sue Morand at the NHBA Insurance Agency at the Bar Center at 224-6942 for information. Information will be mailed to members regarding these offerings early in the New Year.