Your Money: Life insurance a good idea for most
I’m sure you already know it’s National Life Insurance month, right? Let the celebration begin! I receive questions all the time, and although I do not profess to be an insurance expert (in fact, I have to send a shout-out to Joy Woodward of Farmers Insurance for all the knowledge she shared with me), I do think this subject is worthy of publishing.Does everyone need life insurance? In my opinion, no. If you are young and have no dependents and no debts that would be passed on in the event of your death, then you may not need life insurance. There are reasons you may want it, such as to guarantee that you could get coverage later, but you don’t necessarily need it. You also may not need life insurance if you are self-insured. Self-insured means you have enough money in the bank for you, your spouse and your dependents to live on for as long as they need. Unless you are nearing retirement age, this most likely equates to millions of dollars, so make sure to do a thorough calculating before professing to be self-insured!On the flip side, if you have anyone depending on you for financial reasons, or you have significant debts that would not be discharged if you passed away, you most likely are a good candidate for life insurance. Remember, life insurance is not for you, it’s for the people who depend on you. I often hear people say they don’t need insurance because their spouse can just get a job and replace the same income. But, that rationale doesn’t take into account that the spouse may now have child care expenses that didn’t previously exist in a two-parent house, or simply ignores that fact that the spouses income alone isn’t equal to the income both spouses were earning together.Choosing how much life insurance to carry can be quite difficult. Many people believe their work provides a group insurance policy, often two times salary, and that that lump-sum is sufficient. If you apply a generalized financial planning theory that you can draw about 6 percent of income off a lump-sum and maintain that balance, you need to carry a balance of insurance that allows you to earn 6 percent each year and meet your needs. If you need $60,000 to cover your family’s living expense, then you should carry $1 million of life insurance.No matter how practical you are, thinking about your own death or the death of a spouse is never fun. But, if you have loved ones depending on you for their financial security and well-being, it’s a conversation you need to have with your family and your financial team. They will thank you later.Michele Knight, owner of Knight Accounting & Technology, is a CPA and QuickBooks ProAdvisor based in Dillon. For more info and to contact her, visit http://www.cpamichele.com.
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