How to decide when to buy life insurance

So you’ve decided that you need to buy life insurance. But do you really need life insurance? If so, how much do you need? These are some good questions to answer before you buy life insurance coverage.

The truth is, not everyone needs life insurance. If you’re young, single, and don’t have any dependents, you probably don’t. But, if you have a husband or wife, aging parents, or children who depend on you financially, it’s probably a good idea to buy life insurance.

Income replacement

The next step is to find out how much income you would need to replace if you were to pass away suddenly. You might need enough life insurance to replace your salary but also to pay for college tuition and perhaps career training for a spouse who would have to re-enter the workforce.

Stay-at-home parents need to figure out how much it would cost to hire help to perform tasks you do daily, such as cooking, grocery shopping, and day care, among other things.

Once you know how much it would cost to replace what you provide, you need to figure out how much money it would take to generate that amount each year. Assume that the money you are paying into the policy will generate five to six percent in interest every year. In that case, it would take a $1 million policy to replace a $50,000 annual income.

Changing needs

Most people buy life insurance and forget about it. But your life insurance needs will vary throughout your life. So, you might need to update the policy. When you’re first married, your needs are different from when you have an empty nest and you’ve paid for your children’s college educations. You might be retired and financially independent and have no need for insurance.

If you want to buy life insurance as cheaply as possible, kick those unhealthy habits. Get some exercise and stop smoking and you’ll save money on your insurance premiums.