Life Insurance Coverage: How Much is Enough?
According to an article in the New York Times in 2006, the rule of thumb for life insurance coverage is to secure ten times your annual salary. This may vary, but it seems to be a good guideline in determining how much coverage you need to purchase for yourself and your family. Another way to determine how much insurance coverage you need is to use a calculator created specifically for planning life insurance needs. By answering questions about your outstanding debt, your replacement income, your mortgage balance and your current assets you can calculate an appropriate life insurance estimate. Providing personal information in these easy-to-use tools is a quick and simple way to get a ballpark idea about how much life insurance coverage you may need.
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A Glossary of Terms
In searching for your new life insurance coverage, a deluge of new terms will be coming you way, and it can be tough to understand this complicated new language. Here is a brief glossary intended to help make things a little more clear:
Beneficiary:The person(s) named by the owner of the policy to receive the life insurance proceeds upon the death of the insured.
Convertible Term Insurance: Term insurance that can be exchanged (converted), at the option of the policyowner and without evidence of insurability, for a permanent insurance policy.
Dividend: A return of part of the premium on participating insurance that is based on the insurer's investment, mortality and expense experience. Dividends are not guaranteed.
Face Amount: The amount stated on the face of the policy that will be paid in case of death. It does not include additional amounts payable under accidental death or other special provisions, or acquired through the application of policy dividends.
Insured or Insured Life: The person on whose life the policy is issued.
Loan (Policy Loan): A loan made by a life insurance company from its general funds to a policyowner on the security of the cash value of a policy. Generally, loans reduce the policy's death benefit and cash value by the amount of the outstanding loan plus interest.
Paid-up Insurance: Insurance that will remain in force with no need to pay additional premiums.
Participating Policy: A life insurance policy that is eligible for the payment of dividends by the insurer (see also Dividend).
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Why You Should Consider Coverage
Life insurance coverage isn't exactly a popular topic of conversation around the dinner table or at a cocktail party, but life insurance certainly is an essential component of a financial plan, that seeks to protect your family and loved ones in the event of your untimely demise. If there are people that you truly care about, who would suffer severe financial hardship if the unthinkable should happen, life insurance is not something that you should ignore.