The primary purpose of life insurance is to provide a source of income,
in the event of one’s death, for children, dependents, or other
beneficiaries. Life insurance can also
serve certain estate planning purposes, but are beyond the scope of this
A decision to buy life insurance depends on whether there are
dependents. If one has a spouse, child,
parent, or some other individual who depends on their income, then life
insurance is needed.
The younger the children, the more expensive private schools and
universities where they will go to school, the greater annual expenses are and
the more debt one has, the more life insurance is needed. If both spouses earn income, then both
spouses should be insured, with insurance amounts proportionate to salary
amounts. Flat annual premium level term
insurance is the best type of insurance to obtain in most situations.
If one spouse does not work outside the home, insurance should be
purchased to cover the absence of the services being provided by that spouse
(child care, housekeeping, bookkeeping).
If the surviving spouse could live comfortably without the other’s
income, meaning one may have self-insured by saving, then you will still need
life insurance, but less is needed than someone who has more dependents and
greater expenses. At a minimum,
a provision for burial expenses and paying off debts will be needed.
If the surviving spouse would undergo financial hardship without one’s
income, or if adequate savings have not been accumulated, there may be a need
to purchase more insurance. The amount
will depend on salary level and that of the surviving spouse’s realistic
earnings ability as well as on the amount of savings that have been accumulated
in addition to the amount of debt that has been accumulated.
For further information, contact Diane M. Pearson, CFP™ at (412) 635-9210