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Life Insurance Needs Estimation

May 1, 2008
Most families know they need some life insurance. They have probably had a friend or family member who was in financial trouble after a breadwinner died, and then they decided that they would never want to put their own family in that bad situation. Or maybe they were just raised with parents who always kept a current life insurance policy and taught them the value of protecting their loved ones, so they did not have to personally witness a tragedy. However, many people put off the purchase of a life insurance policy just because they really do not know how much life insurance to buy, or because they have other simple questions about life insurance.

If you do not know how much life insurance to buy, let us take a simple approach to figure it out. I think a good place to start is with money owed on a home, or with rental payments that need to be made into the future. If a family has only one breadwinner, or if the other parent does not make enough income to pay all of the bills, it is really important to have the security of a place to live.

If the house could get paid off, or if money could be saved in an interest bearing account that could be used to pay the mortgage or rent, that will cut a large obligation out of the monthly bills. Even if the family that is left decides they just cannot afford the home without the main breadwinner, extra money will give them time to sell that house and move into a more affordable house.

Next, look at debt. Debt payments can really eat into monthly budgets, and poor credit from late payments hurts worse. So if one provider would pass away, it would be great to have a way to pay down debt. Having a home and reliable transportation all paid off is a great comfort. Being able to pay off unsecured debt would reduce the burden of many families that might, otherwise, be in trouble.

Future eductation expenses should be considered. Lots of people think of the children's eduction, but they may not think of the spouse being re-educated so he or she can make more money in the future. Along with that expense, may come additional child care, help around the house, and help with repairs. Even if the spouse that passes away is not a breadwinner in the home, they do perform services that will need to be replaced. Can you imagine how much it would cost to replace the taxi driver, housekeeper, cook, and baby sitter that many people call a wife! Likewise, husbands are likely to perform routine repairs around the house, and believe me, it is expensive to hire a professional to do them.

And of course, final expenses need to be considered. Funerals average 8 thousand dollars in the US, and can costs much more in some areas. Other items, such as medical bills, travel expenses, and possibly, transporting the body can come up after an unexpected death.

You need to think about how certain bills could get paid if one breadwinner would pass away. Balance this need against your current budget. If you purchase more life insurance then you can afford right now, then you are likely to drop the policy when the first unexpected bill comes up. Of course, a dropped life insurance policy will not do you any good at all.
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