Many people fail to realize that when they accomplish goals like earning more money and achieving a higher standard of living, they increase their need for Life insurance. That’s because Life insurance provides support for your dependents if you die prematurely. It allows your family to maintain the same standard of living they have become accustomed to, even after you are gone.
If you stop and think of the many ways your family depends upon your income and what would happen if it were suddenly taken from them with no replacement, you will begin to understand the importance of life insurance benefits. If you have a stay-at-home spouse, they may need the death benefit proceeds from a policy to pay the mortgage or save for your children’s education. The money your spouse receives from the death benefit can help them continue to care for your family in the interim while looking for a job. Without that financial cushion, your spouse might have to sell the house or your children may have to delay going to college.
To be certain that you adequately provide for your dependents, you should increase your Life insurance as your salary increases. The ratio between your coverage amount and your salary decreases, as your salary gets higher. So if you begin with a policy providing a death benefit equal to ten times your salary, by the time you reach 50 years old and are earning twice as much money, the coverage amount will have decreased to only five times your salary.
Another misperception regarding Life insurance is that once you turn 65 and your children are grown, you no longer need it. Remember, most people live up to every penny they earn. As their income increases, they tend to increase their standard of living via expensive new cars or second homes, so that at age 65, many of them could still conceivably be carrying mortgages or auto loans. In order for the surviving spouse to maintain their current lifestyle, the insured would have had to increase their coverage to keep pace with their spending.
When considering Life insurance needs, there is also the issue of longevity. Today people are living into their eighties and beyond. If the insured dies at 65, the surviving spouse could live another twenty to thirty years, in which case they would need the death benefit proceeds to cover living expenses.
It is not difficult to see that there is a real need to have your Life insurance keep pace with your salary. You should review your life insurance with your agent on a yearly basis to develop a plan to ensure your dependents will remain financially comfortable after your death.