What is Life Insurance?
When it comes to personal financial planning, life insurance is one component that is critical to managing your finances and family affairs responsibly. The primary purpose of life insurance is to protect your loved ones against financial loss by providing a generally federal-income-tax-free death benefit once you are gone. There are many other advantages to life insurance that go along with the death benefit.
How Much Insurance Do I Need?
Before buying life insurance, you should assemble personal financial information and review your family’s needs. There are a number of factors to consider when determining how much protection you should have. These include:
- any immediate needs at the time of death, such as final illness expenses, burial costs and estate taxes;
- funds for a readjustment period, to finance a move or to provide time for family members to find a job
- ongoing financial needs, such as monthly bills and expenses, day-care costs, college tuition or retirement.
Although there is no substitute for a careful evaluation of the amount of coverage needed to meet your needs, one rule of thumb used is to buy life insurance that is equal to five to seven times annual gross income.