My mortgage company says I should buy life insurance from them, what is that about?
Most likely your mortgage company is offering something called "mortgage protection life insurance" or "decreasing mortgage protection" or a similar title. This sort of protection is a basic term life insurance policy that usually has a level premium, but the death benefit pays off your mortgage loan at your death. This level premium may or may not reflect the decreasing death benefit. What that means is that you will be paying the same premium each year for a death benefit that is decreasing over time (as your mortgage decreases with payments). This is the case with any sort of "credit life insurance", insurance taken out in conjunction with an installment loan. There may be better alternatives. You should talk to your insurance professional before purchasing any type of coverage to see what other alternatives are available.
What if I already have life insurance coverage through my employer?
That's great, and it's wonderful that you are fortunate enough to have an employer that recognizes the value of life insurance coverage for you and your family. Be sure to find out from your employer if this coverage is 'portable', meaning you can take your policy with you when you leave the company or become disabled. Not all policies are portable. When talking to your insurance professional, be sure that he or she knows you have this type of coverage so that can be factored into any determination of your additional needs.
Why should I purchase life insurance coverage on my children or my spouse?
Your priority is to provide for your family. This should be your priority when considering life insurance as well.
You must have the means to take care of your financial obligations, as well as providing care for your children should your homemaker-spouse die. The opportune time to buy life insurance for your children is when they are young and the rates are low. This enables them to continue the coverage when they are grown with financial obligations of their own. This also protects their "insurability", should they develop any sort of health problem later in life. There are many types of policies that can be made into "family plans" at a lower cost than separate coverages for each individual. Talk to your insurance professional to determine your needs.
How much life insurance should I purchase?
As a "rule of thumb" you should purchase an amount of life insurance equal to 6 to 8 times the annual earnings. However, many factors should be taken into account in determining a more precise estimate of the amount of life insurance needed.
Important Factors include:
- Income sources (and amounts) other than salary/earnings
- Whether or not the individual is married and, if so, the spouse's earning capacity
- The number of individuals who are financially dependent on the insured
- The amount of death benefits payable from Social Security and from an employer sponsored life insurance plan
- Whether any special life insurance needs exist (e.g. mortgage repayment, education fund, estate planning need) etc.
It is recommended that a person's financial professional be contacted for a precise calculation of how much life insurance is needed.
How do I know which is the right type of life insurance?
The answer will vary depending on your circumstances, need for the coverage, timing of the purchase and how much you are willing or able to spend. The best way to determine the right policy is to sit down with a qualified insurance professional to review the key points of your particular situation. This can be done through a very short (30 minutes or less) interview to determine your needs.