When you talk to a broker about life insurance, are you sure you're asking the right questions, or do you still feel confused? Let's look at what life insurance is for and see if yours is doing what you want it to do.
Why You Should Get Life Insurance
It gives the family security in case the main person who brings in money dies.
It brings in money for good causes.
It could pay future estate taxes
It could also pay for your retirement.
If you don't have enough life insurance to replace the income of your main breadwinner, you need to get more. If you have kids at home, the situation is even more important. There are a lot of people who don't do this to protect their loved ones. Also, being able to pass on the money from your life insurance to the next generation can help your family out financially in a big way.
The second reason is to help people in the future. By being specific about your donations, you can help out your favourite charity.
Taxes can be helped by having life insurance.
If you have a lot of stuff, your life insurance can help pay for the taxes on your estate. If you aren't ready, your heirs may have to pay taxes worth thousands of dollars after you die. Life insurance is a great way to pay these taxes without taking money from the estate itself.
After you stop working, you should look at your life insurance again.
You might not need life insurance after you retire. If you have enough money and your mortgage and your kids' college expenses are paid, you can reevaluate your life insurance and maybe drop it altogether. But it's always a good idea to talk to a broker before making any big changes to your life insurance portfolio.
How to figure out how much life insurance coverage you need
If your family is growing, the money from your life insurance needs to be enough to take care of your family.
When you die, the money you paid for life insurance becomes the life insurance capital. This capital needs to be invested carefully in order to bring in the money you need.
Let's say you leave $1 million to your spouse and three children. If you invest that money at 5%, it will bring in $50,000 before taxes. Is that good enough? If so, you need to do that.
But what does this money from life insurance do?
Here's one possible case. Your kids grow up and move away. Your spouse can turn the $1,000,000 into an annuity or just keep getting money from it as a pension. And this is one way that life insurance can help you.
