Whether you need life insurance depends on your family circumstances and your personal financial status. No pat answer covers every individual situation. Evaluating the family financial condition as objectively as possible can help you determine if you need life insurance. An honest in-depth assessment of what life would be like for your family without you, both now and in the future, is a good place to start in gathering information to make the decision.
Look at the Larger Picture
Looking at present circumstances helps determine if you need life insurance. If you have a hefty mortgage and your spouse or partner would be liable for the remainder without your income to rely on, this consideration should factor into your decision. Other debts, such as auto loans, student loans and credit card balances, need to be taken into account as well. Whether your family depends on your income for day-to-day living expenses is another factor. In addition, current resources play a significant role in determining if you need life insurance. Assets to consider are balances in emergency savings, investments and retirement accounts. You should also calculate how long these funds would last if contributions stopped today.
Analyze Your Daily Expenses
Awareness of where your money is spent on a day-to-day basis makes it easier to determine your dependents' future needs. A list of your present expenses shows where your family's income goes. Looking back over the past two years of monthly expenses provides an even broader view. Checkbook registers and filed copies of monthly bills offer insight into regular and expected expenses, and unusual and one-time payments. Your consideration here is whether your survivors could pay all these expenses and maintain their lifestyle if your income were suddenly gone with no possibility for replacing it. Life insurance can fill in that gap.
Peer Into the Future
Analyzing potential future expenses is important in determining if you need life insurance. Consider where the money will come from if you have children who will require financial help with college. Another factor is whether you wish to protect your assets and how much you want to leave for your children and grandchildren. Immediate expenses your family would incur in the event of your early death include funeral expenses and, in some jurisdictions and situations, estate taxes. In addition, you might be leaving your survivors with unpaid medical bills.
Doing Without Life Insurance
Not everyone needs life insurance. Perhaps your mortgage is paid and you have no outstanding personal loans. If your children are grown and college is behind them, or you have no children at all, your need for life insurance may be greatly diminished. You might be without a spouse or partner, or your spouse or partner does not depend on your income to meet living expenses. If your savings and investments will leave a comfortable income for your survivors in addition to covering funeral expenses and any medical bills left behind, then life insurance may be an extraneous expense.
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