The purchase of life insurance may be one of the most important decisions that you make in your financial life. However its a decision that most of us will put off until something happens that hits close to home. That is not to surprising considering most people don’t like to think about death, but at the same time being unprepared can have serious consequences.
There 3 questions you should ask yourself before purchasing a California life insurance plan:
Do I need Life Insurance?
How much do I need?
What kind should I buy?
The answer to the first question is simple. If someone will suffer financially when you die, you need life insurance! This could mean your family, aging parents or even your business partner and employees.
The best way to figure out how much coverage you need is have an insurance professional conduct what’s called a financial needs analysis. You will start by gathering all your personal financial information and then estimate how much money your family members will need after you’re gone to meet their financial obligations. To calculate this figure you will need to think through 3 types of expenses:
Immediate Expenses
- Funeral expenses
- Uncovered medical costs
- Mortgage and other debt
- Taxes
- Estate settlement costs
Ongoing Expenses
- Food
- Housing
- Utilities
- Transportation
- Insurance
- Clothing
Future Expenses
- College
- Retirement
After tallying up these expenses you will be able to determine how much coverage you will need to keep you family financially stable in the event of your death.
There are 2 fundamental questions to ask yourself when trying to determine what kind of life insurance to buy.
How long will you need the insurance?
How much money do you have in your budget for this coverage?
How long you need a policy for will determine if you what term or permanent life insurance.
Term Life Insurance
This insurance lasts for a specific period of time and is good to cover temporary needs. The policy could last 5 years, 10, 20 or maybe even 30 years. Remember that the shorter the policy term, the more affordable the premium. However, once the policy term has expired you may have to take another physical to qualify and you will have to pay a considerably higher premium to maintain the policy.
Permanent Life Insurance
Exactly what the name implies, its with you for life. The premium for this type of policy is scheduled to remain level for your lifetime. These plans build a cash surrender value that is available if needed for things like emergencies, opportunities or college for your children. Of course these benefits of permanent insurance come at a price and are often more expensive than term insurance.
