Lifelong Commitments: A Closer Look At Life Insurance

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By Mia Bolaris-Forget

Most of us have car insurance, health insurance and some even homeowners insurance. But, when it comes to life insurance, many of us would rather not think about it, which means we just might be inclined to put it off. Yet, experts suggest that there’s really nothing to be put off about, and that life insurance policies are set up to protect your family and your future.

They note that when purchasing a policy, you can go one of two ways. And, they note that neither is necessarily better than the other, and that each has its shortcomings and limitation.

The first and possibly “simplest” plan of action is taking out a plan based on a multiple of your income. It suggests a total policy of between 7 to 15 times your annual income.

The second plan of action is based on a determination of how much annual funding the surviving spouse, child, etc would need divided by a established rate of return on the life insurance amount (excluding the use of principal and factoring in interest only). In such a scenario, an annual yield of $70,oo for life using a 5% rate of return would offer a death benefit of 1.4 million.

You can see then that the second scenario generally yields a greater overall insurance amount, especially when you choose a lower rate of return. But, it does mean that the amount (of income) necessary may go down in certain circumstances such as a child moving out or no longer needing your financial support, a lower or paid-off mortgage, or the starting of a retirement fund. And, it takes into account the amount yielded using interest only and none of the principal

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