Answers to Young Families’ Life Insurance Questions

This is the first article in a series of three written to address the life insurance questions of familial age groups. This first installment addresses the unique needs of young families with dependents. The second installment will address the needs of middle aged couples and families. And, the third installment addresses the concerns of older couples and retirees.

In its simplest form, life insurance transfers the risk of death to an insurer. Usually, the purpose of life Insurance is to provide for those you leave behind when you die.  Adequate life insurance coverage is especially important for young families. The loss of a provider’s income can be devastating to a young person with one or more children. This situation is especially tragic when you consider how inexpensive and easy it is for young healthy people to secure an appropriate death benefit.

How much life insurance do we need?

For young wage earners, determining the right death benefit usually consists of determining how much capital will be needed to fund the future needs of your dependents. The least expensive form of insurance, and often the most appropriate for this purpose, is term life Insurance.

If you are considering purchasing a term life insurance policy to replace your income should you die and untimely death, here’s a simple process to estimate the amount of coverage you may need: 

  1. Determine the annual amount of income needed by your dependents in the event of your death.
  2. Determine the number of years this income will be needed.
  3. Include any debts you would want paid off in the event of your death.
  4. Estimate your burial expenses.
  5. Add these four items and subtract your existing life insurance benefits.

The above process should give you a pretty good idea of how much death benefit you need and the term you need to specify. You can fine tune this figure by adding 5 or 6 percent per year to cover inflation.

In the next article I’ll discuss the needs of mid-life couples and permanent insurance such as Whole Life and Universal Life.


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