Question: I’m 30 years old, single, with three siblings, two of them have jobs and one in college. My parents are retired and have a small apartment business. Is it really necessary to get life insurance now? – MaryAnn via email
Answer: By the construction of your question it looks like buying life insurance is really on your “to do” list. It’s just that you are trying to postpone it if possible because it might not be a necessity for you now.
One of the reasons for buying life insurance is to protect the income you will lose if you pass away unexpectedly. And why protect income? So that you can leave something behind to your loved ones to tide them over during the period that they are trying to financially bounce back.
But as you said, you don’t have your own family yet. So, what is the point of buying life insurance now?
Well, the other reason why enough life insurance should be bought as early as possible is because the premiums are more affordable the younger you are. Why? This is because as people age, the risk of their passing away increases and this additional risk will cost more.
“And who will be my beneficiaries?” you might ask. Why not make your family members you revocable beneficiaries. By making your beneficiaries revocable, you can switch them with your future husband and children. Just note that payouts under a life insurance policy with revocable beneficiaries are still subject to estate tax. Only payouts under a life insurance policy with irrevocable beneficiaries are exempt from estate tax.
An additional question on your mind could be how much of life insurance coverage should you be buying. There are many ways of computing this from simple rules of thumb to detailed forecasting of the lifestyle that your beneficiaries will need to fund when you are gone.
One rule of thumb is to determine how long in years your loved ones will need to financially bounce back from losing you. Once you know that number, simply multiply it to your annual income to arrive at the life insurance coverage you will buy. Don’t buy life insurance coverage for your family for the rest of their life. That strategy does not only spoil beneficiaries and promote laziness, it is also very expensive.
A sample detailed computation would be to estimate the expenses your family will likely incur upon your passing away. These would include likely hospital expenses towards your untimely death, burial expenses, estate taxes, and debt liquidation to name a few.
You will need to add to these foregoing expenses the amounts your family will need to survive for a number of years. These will cover children’s education, spouse’s retraining to join the workforce, daily living expenses and others.
Finally, subtract from the sum above your assets that your family can readily liquidate at the time you are called from this world, income streams you will leave them and any existing life insurance coverage to arrive at your capital gap. This capital gap is the additional life insurance coverage you will need to secure.
Please note that the foregoing computation is not complete. You will need to sit down with your insurance planner to really find out the complete picture on how much life insurance coverage you will need to get.
So don’t wait any longer. Buy life insurance now. Remember that insurance is your gift to your loved ones and, therefore, an asset.
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