Using Life Insurance to Protect Your Family's Future
For many of us, the most important priority in life is providing for our families. That’s why it’s worth asking a few difficult but necessary questions:
- What would happen if you died tomorrow?
- What would your family be left with financially?
- Do you have young children at home?
- Do you hope to pay for their education?
- Who will care for them if one or both parents were to pass away?
- Would your spouse be able to replace your lost income?
These are not questions that you want to leave unanswered. With the proper planning, you can move forward confidently on your financial journey.
What is Life Insurance?
Life insurance is a contract in which an insurance company agrees to pay a death benefit, often a lump sum, to your chosen beneficiaries if you die while the policy is active. For those who are healthy or relatively young, life insurance can often be purchased at an affordable rate.
Insurers can offer this protection by applying the “law of large numbers.” In short, insurance companies can predict the mortality rate across a large group of people with enough accuracy to provide insurance coverage at a reasonable cost and still be profitable.
Is Life Insurance Necessary?
The answer is not always straightforward and varies depending on your personal situation. Some aspects to consider include:
- Family Structure
- Available Assets
- Other Sources of Income
- Outstanding Debt
- Educational Funding Needs
- Funeral Costs
- Special Needs Planning
- Any Unique Circumstances
If you already have substantial assets that your family can rely on, life insurance may not be necessary. This is often the case for older couples nearing retirement. However, if you have young children at home and your assets are not yet sufficient to cover long-term needs, life insurance coverage likely makes sense.
How Much Coverage is Enough?
A general rule of thumb for those that need life insurance is to purchase coverage roughly 10 times your annual income. For example, if you earn $100,000 a year, that would mean $1 million in coverage.
That said, using a rule of thumb is generally not the prudent route to safeguarding your family’s future. Your actual needs depend on many factors.
A comprehensive analysis is usually the best approach.
Types of Life Insurance
There are several types of life insurance policies, and the right choice depends on your specific situation. Some of the most common policies are:
- Term Life – Provides insurance for a fixed period, generally at a low cost.
- Whole Life – Lifetime coverage with fixed premiums and cash value accumulation.
- Variable Life – Lifetime coverage with investment options within the policy.
- Universal Life – Lifetime coverage with flexible premiums and potential cash value growth.
- Variable Universal Life – Combines features of universal and variable life.
This is not an exhaustive list but highlights the most common options families consider.
Final Thoughts
Life insurance is not a one-size-fits-all decision, but for many, life insurance provides a layer of protection for their family. Protection that their current and future earnings can still support their loved ones, even if they are not around.
A proper financial plan accounts for these possible scenarios and can bring peace of mind and stability. As always, it is wise to consult with a licensed insurance professional to determine what coverage is right for your specific situation.
-Bill Rautiola, RICP ®, AIF ®, PPC ®
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
