Life Insurance FAQs
- Why should I have life insurance?
It is important for you to do what is right for those you love, and life insurance is one way for you to provide for your family after your death.
You need life insurance to provide stability and ensure that your surviving spouse and children can maintain their lifestyle after you are gone.
- How much life insurance should I purchase?
You should have enough coverage to replace the income that you would have earned if you were living and able to continue to earn. One rule-of-thumb suggests that you should purchase a life insurance amount that is six to eight times your annual earnings. In addition, there are many other factors that you should consider when determining how much life insurance you need, including:
- Income sources (and amounts) other than salary/earnings
- Marital status
- If married, your spouse’s earning capacity
- Number of people who are financially dependent on you
- Other death benefits available, including Social Security and employer sponsored life insurance
- Goals for your life insurance proceeds, including mortgage debt, education fund for dependents, estate planning, final expenses, charities, etc.
- Does smoking or using tobacco affect my life insurance rates?
Yes. Smoking or using tobacco can affect your life insurance rates, but it does not mean that you cannot get coverage or find competitive rates. You might also be able to remove your tobacco-use rate on an existing policy if you quit using tobacco for a certain number of years.
- Can I purchase life insurance on my spouse or children?
It might be advisable under certain circumstances to purchase life insurance on your dependent children; however, it is more important to be sure that you purchase sufficient life insurance on the family breadwinner. Ultimately, the most important consideration when purchasing life insurance for your family is that the primary breadwinner is fully protected with an adequate amount of life insurance before purchasing additional policies for other family members, such as children or a non-earning spouse.
If you and your spouse have dual incomes, the earning capacity of each of you should be protected with life insurance. If your spouse does not earn regular wages, life insurance is often recommended to help pay for household services that this person provides.
- Should I purchase term life insurance or some type of cash value life insurance?
The answer to this question varies due to an individual’s life circumstances and goals for the policy. However, there are several principles that can be followed to help guide you toward the best type of policy for your needs. You must determine:
- How much life insurance should I purchase?
- What type of life insurance policy should I purchase?
Question 1 is an insurance decision, and question 2 is a financial decision.
The insurance question should be resolved first. For example, if the amount of insurance you need to purchase is large, it may be cost prohibitive and your only option is to purchase less costly term insurance.
If you can afford to and are willing to purchase either a term life insurance policy or a cash value policy, you have additional decisions to make. You must then decide which type of policy to buy based on considerations such as your income tax bracket, whether the need for life insurance is short-term or long-term (e.g., 20 years or longer), and the rate of return you could earn on alternative investments with the same level of risk.
- How does mortgage protection term insurance differ from other types of term life insurance?
The face amount of a mortgage protection term insurance policy decreases over time, consistent with the projected annual decreases in the outstanding balance of your mortgage loan. Mortgage protection policies are generally available to cover a range of mortgage repayment periods, e.g., 15, 20, 25 or 30 years. While the face amount of a mortgage protection policy decreases over time, the premiums are generally level.
- Can an existing life insurance policy be used to provide for the repayment of an outstanding mortgage loan?
Yes. Lenders will not typically require you to purchase a new mortgage protection insurance policy. An existing life insurance policy of any type can be used for many purposes, including paying off an outstanding mortgage loan balance in the event of the insured’s death.
- Should I purchase credit life insurance?
Credit life insurance is often recommended if you take out an installment loan to make a large purchase, such as new appliances or a new car, or for debt consolidation. But credit life insurance is usually more expensive than traditional term life insurance. In addition, if you already own a sufficient amount of life insurance to cover your financial obligations, including debt repayment, you do not need to purchase a costly credit life insurance policy.