LIFE PLAN BASICS III - WHAT WOULD HAPPEN IF I DIE TONIGHT?
NOTHING, to you at least, we hope. But you leave behind, not only grieving family and friends but financial uncertainty for your family. Grief recedes over time but financial burden increases. Because of your untimely demise, you may not have had sufficient time to build a nest egg for you and your family. Sure, there is the savings account, retirement account and hopefully insurance from work but would that be enough to cover home mortgage, car payment, monthly expenses, debts, college, weddings of children etc? Do you know how much money your family will need if you died tonight? Rough estimate is 10 times your gross annual income! Of course there are numerous websites, this I randomly picked up:
Kiplinger website also gives sound advice: http://www.kiplinger.com/magazine/archives/how-much-life-insurance-do-you-need.html
Let's assume calculated that $ 1,000,000 as requirement for your family for the next 20 years! How in the world will you able to afford an insurance of 1 million dollars? Answer is simple TERM INSURANCE.
Term insurance is a type of life insurance policy that provides coverage for a certain period of time, or a specified "term" of years. If the insured dies during the time period specified in the policy and the policy is active - or in force - then a death benefit will be paid.
Term insurance is initially much less expensive when compared to permanent life insurance. Unlike most types of permanent insurance, term insurance has no cash value. There are many different types of term insurance policies available. Many policies offer level premiums for the duration of the policy, such as 10, 20, or 30 years. These are often referred to as level term policies.
For example, a healthy 40-year-old male nonsmoker might be considering a 20-year, $500,000 term policy for $360 per year ($30 a month< less than a cup coffee a day). But he could buy $850,000 of coverage for $576, or a $1-million policy for $645, which represents dozens of life insurers. Women pay less -- just $311 per year for $500,000 in coverage and $558 for $1 million. You can get prices from dozens of companies at www.accuquote.com or www.lifequotes.com.
So calculate the amount of money your family will until your retirement age of 65 e.g. a million dollars. If our age is 40 now, you need 25 year term policy. It will cost you $720 if you are healthy and non-smoker that is 60 dollars a month! ($2 per day less than a packet of cigarette per day).
Take out life term policy on earning member of your family only, which includes your spouse who may not be working outside the home but is taking care of your house and children and loss of spouse is irreplaceable and in terms of money, worth hundreds of thousand dollars. School age children do not need life insurance. College students may be covered for amount of college fees paid.
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