The Need for Life Insurance

Insurance is intended to offset the risk of an unknown future problem. Automobile insurance offsets the risk of getting in an accident, home insurance offsets the risk of a catastrophic event destroying your home, and life insurance is intended to offset the risk of you dying without enough savings for your dependents to live on.So, how much life insurance is needed? And, what is the difference between whole life and term life insurances?A common rule of thumb is that you want an insurance policy equal to 10 years of your income, and you keep it as long as you have dependents. So, hypothetically speaking, if you have a $50,000 annual income and have a 5-year-old, you would want to have $500,000 in life insurance for a minimum of 13 years—until your child turns 18.As for insurance type, we recommend term life insurance over whole life insurance because it is typically more affordable, and the advantages touted by whole life insurance proponents don’t typically provide a reasonable rate of return. That being said, this is not a hard rule for everyone.These rules of thumb are not fast, hard rules, but they will give you a general idea of what you might need. Before obtaining any life insurance policy, we highly recommend you talk with an insurance agent or your financial advisor to find out how life insurance aligns with your financial plan.