Americans are ill-prepared for end-of-life planning, survey finds: Here’s how much life insurance you need

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While many consumers understand the need for life insurance, they’re not as prepared for end-of-life planning as they think they are, a new survey shows. Here’s how to determine your life insurance needs. (iStock)

Americans are overconfident and unprepared for an unexpected death in the family, according to a recent USAA survey of more than 2,000 respondents. While the majority (74%) said their loved ones would be financially secure in the event of death, 40% said their family would not be able to afford basic living expenses for more than a year.

The reason? Less than half (46%) of Americans have life insurance.

Life insurance is a financial safety net for your loved ones in the event of premature death. A comprehensive policy can replace your income and provide enough money to cover funeral costs, debt repayment and future investments, as well as current expenses.

USAA recommends having enough life insurance to pay off all of your debt and replace income for at least five years.

– Statement from Brandon Carter, President of USAA Life Insurance Company

“It’s important to protect your family today, so that if the unexpected happens, their primary focus can be to support each other,” Carter continued.

Are you looking for life insurance? You can compare life insurance quotes for free on Credible.

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How Much Life Insurance Do You Need?

No one likes to talk about premature death – in fact, Americans feel more comfortable talking about politics (68%) than end-of-life planning (62%), according to the USAA survey. But it’s important to analyze your finances while you’re in good health, so that you can leave your family with a life insurance payment that can replace your income if you die suddenly.

Life insurance should cover the cost of your funeral and leave your family with enough money to cover living expenses and debt repayment. While a common rule of thumb is to purchase a policy of 10 to 15 times your annual income, there are some considerations you should keep in mind.

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Questions to ask yourself when choosing a death benefit amount

The amount of life insurance coverage you need depends on several factors. Sit down with your monthly budget and ask yourself these questions about your financial obligations:

  • What is your annual income and how many years of income do you want to replace?
  • What additional sources of income do your beneficiaries have?
  • How much debt do you have? How much money do you have in savings and investments?
  • How much money do your children need for their education and school fees?
  • Do you have work life insurance? If yes how much ?

Next, you’ll want to calculate your insurance needs by adding your financial obligations (mortgage payment, child care expenses, burial expenses, student loans, credit card debt) and subtracting your assets (savings, investments, existing life insurance policies). Here is an example :

Once you’ve decided on the amount of coverage you need, use a life insurance calculator on Credible to estimate your monthly premium.

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What type of life insurance do you need?

In addition to assessing your coverage needs, it’s important to compare the different types of life insurance, including term policies and whole life policies. Weigh the pros and cons of each below.

Term life insurance

A term policy is the traditional type of life insurance. You buy a policy that lasts for a certain period of time, typically 10 to 30 years. If you die before the term expires, your beneficiaries receive payment.

  • Advantages: Affordability
  • The inconvenients: No monetary value
  • Cost: $ 25 to $ 50 per month

Term life insurance policies are relatively affordable, especially if you sign up when you are young and healthy. The cost of life insurance increases as you get older and your health deteriorates.

Visit Credible to compare term life insurance quotes from multiple life insurance companies at once.

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Whole life insurance

Also known as permanent life insurance, whole life insurance is a policy that does not expire until your death. It has guaranteed cash value and you can access payments while you are alive. Whole policies are much more expensive than term policies, but they are considered an investment due to the resources provided.

  • Advantages: Guaranteed cash surrender value
  • The inconvenients: High cost
  • Cost: $ 300 to $ 3,000 + per month

You can compare different types of insurance and find the right insurance company for you on Credible.

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Have a finance-related question, but don’t know who to ask? Email the Credible Money Expert at [email protected] and your question could be answered by Credible in our Money Expert column.


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