Securing Your Family's Future: Understanding the Benefits of Term Life Insurance 

As a responsible adult, it's natural to want to protect your loved ones in case something unexpected happens to you. One way to do this is by purchasing term life insurance, a type of insurance that pays a death benefit to your beneficiaries if you pass away within a specified term.

Term life insurance can provide valuable financial protection for your family in the event of your untimely death. The death benefit can be used to cover expenses such as final expenses, mortgage payments, and college tuition. It can also serve as a replacement for your income so that your loved ones can maintain their standard of living.

Another advantage of term life insurance is that it is generally more affordable than other types of life insurance, such as whole life insurance. You can choose the term and coverage amount that works best for your budget and needs.

It's important to note that term life insurance is temporary and will only provide coverage for a specific period of time, usually between 10 and 30 years. If you outlive the term, the coverage will expire and you will not receive any cash value.

In summary, term life insurance can offer peace of mind and financial security for your loved ones in case something unexpected happens to you. It is a cost-effective way to protect your family's future. Speak to a financial advisor to determine the right coverage amount and term for your needs.

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How Much Life Insurance Do I Need?

Let’s talk numbers….

You can’t pinpoint the ideal amount of life insurance you should buy down to the penny. But you can make a sound estimate if you consider your current financial situation and imagine what your loved ones will need in the coming years.

In general, you should find your ideal life insurance policy amount by calculating your long-term financial obligations and then subtracting your assets. The remainder is the gap that life insurance will have to fill. But it can be difficult to know what to include in your calculations, so there are several widely circulated rules of thumb meant to help you decide the right coverage amount. Here are a few of them.

Rule of thumb No. 1: Multiply your income by 10.

“It’s not a bad rule, but based on our economy today and interest rates, it’s an outdated rule,” says Marvin Feldman, president and CEO of insurance industry group Life Happens.

The “10 times income” rule doesn’t take a detailed look at your family’s needs, nor does it take into account your savings or existing life insurance policies. And it doesn’t provide a coverage amount for stay-at-home parents.

Both parents should be insured, Feldman says. That’s because the value provided by the stay-at-home parent needs to be replaced if he or she dies. At a bare minimum, the remaining parent would have to pay someone to provide the services, such as childcare, that the stay-at-home parent provided for free.

Rule of thumb No. 2: Buy 10 times your income, plus $100,000 per child for college expenses

Education expenses are an important component of your life insurance calculation if you have kids. This formula adds another layer to the “10 times income” rule, but it still doesn’t take a deep look at all of your family’s needs, assets or any life insurance coverage already in place.

Rule of thumb No. 3: The DIME formula

This formula encourages you to take a more detailed look at your finances than the other two. DIME stands for debt, income, mortgage and education, four areas that you should consider when calculating your life insurance needs.

Debt and final expenses: Add up your debts, other than your mortgage, plus an estimate of your funeral expenses.

Income: Decide for how many years your family would need support, and multiply your annual income by that number. The multiplier might be the number of years before your youngest child graduates from high school. Use this calculator to compute your income replacement needs:

Mortgage: Calculate the amount you need to pay off your mortgage.

Education: Estimate the cost of sending your kids to college.
The formula is more comprehensive, but it doesn’t account for the life insurance coverage and savings you already have, and it doesn’t consider the unpaid contributions a stay-at-home parent makes.

How to find your best number

Follow this general philosophy to find your own target coverage amount: financial obligations minus liquid assets. Calculate obligations: Add your annual salary (times the number of years that you want to replace income) + your mortgage balance + your other debts + future needs such as college and funeral costs. If you’re a stay-at-home parent, include the cost to replace the services that you provide, such as child care.From that, subtract liquid assets such as: savings + existing college funds + current life insurance.

Tips to keep in mind

Keep these tips in mind as you calculate your coverage needs:

“Consider buying multiple, smaller life insurance policies, instead of one larger policy, to vary your coverage as your needs ebb and flow.”

Article Credits: Nerd Wallet

Author Credits: Barbara Marquand