When it comes to making certain that your family has an umbrella of protection in the event of your untimely death, nothing comes to the rescue like life insurance.
The purpose of life insurance protection is many fold. However, some of its best uses are to;
- Establish an instant cash emergency fund.
- Pay off credit cards and other individual/family debts.
- Pay off mortgages.
- Create a children’s education fund.
- Pay estate taxes.
Life insurance can address all of the above financial responsibilities if you’re not here to take care of them yourself.
How do you determine how much life insurance is enough? Quick answer: you prepare what’s called a “needs analysis.”
Start with a notepad, a #2 pencil, and an eraser.
- First, list the total value of all your assets, including savings accounts, retirement funds, real estate, personal investments, and current life insurance.
- Second, list all the expenses your family might face if one spouse were to die, including mortgage payoff, rent, college funds, car and credit card payments, and child care.
- Third, knowing that some assets might be sold and some insurance may already be in place, subtract the accumulated needs from the cash available at death. In many instances the needs of your beneficiaries will exceed the value of your current assets and existing insurance. Hence you have a “cash shortfall”.
Like apples and oranges, life insurance comes in different forms, such as term or cash-value insurance. Each form can be applied to either specific needs or to a basket of needs.