Life Insurance FAQs

Q: How much is “enough” when it comes to life insurance?
A: Most experts will tell you that between 6 and 8 times your annual earnings is an ample amount. There are other factors though that should be considered when trying to determine as this amount as closely as possible.
Some factors to consider include:

  • Various sources of income not including your salary/earnings
  • Your marriage status and your spouse’s earning capacity
  • How many financial dependents you may have
  • Whether you can expect death benefits Social Security and/or from life insurance plan sponsored by your employer
  • If you will need to provide coverage for any special circumstances including estate planning, an education fund, mortgage repayment, etc.

Always speak to your insurance advisor who can help determine a more precise calculation on the amount of life insurance you might need.
Q: Should I purchase life insurance on my spouse and/or children?
A: While you may consider doing so in some cases, typically it is more important to concentrate life insurance needs on the individual who provides the main income for the household. This is the main focus before considering additional coverage for other family members. In the case of a dual income household, it would certainly be of benefit to provide life insurance coverage for both spouses.
Q: Is there any need for term insurance or cash value life insurance?
A: When you are making a decision on purchasing life insurance you must answer two basic questions:

  • “How much do I need?” and
  • “What type of policy should I purchase?”

These two questions actually involve two separate types of decisions – an insurance decision and a financial decision.

You should always strive to answer the “insurance” question first. An example of this may be the case in which you need such a large amount of coverage that you will need to select term life so that you can take advantage of the lower premium.

The financial decision will cover factors such as your tax bracket, whether you need short or long term coverage, and rates of return.
Q: Can I use my life insurance policy to repay my outstanding mortgage loan?
A: Typically, you can use your existing insurance policy for many different needs including paying of a mortgage in case of death of the insured.Another type, credit life insurance, is sometimes recommended when selecting an installment loan for purchasing new vehicles or expensive appliances or even in the case of debt consolidation. This raises a question: is credit life insurance a smart buy?

Credit life insurance almost always more spendy than term life insurance. Also, if you already have sufficient coverage through your regular policy, it is usually not advised because of its relatively high cost.

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