Why Do You Need Life Insurance?

I was reminded again this weekend why we need life insurance.

A family friend dropped dead of a presumed heart attack. He had been healthy as a horse. In fact, he was found in his work clothes; he'd been ready to start his day.

He was 57.

We don't know when we are going to die. In fact, healthy people who aren't expected to die prove their doctors wrong all the time. My own father dropped dead of an aneurysm when he was only 48 years old. Who would have guessed? He "looked good".

That's why you buy life insurance. You buy it when you are "healthy" so that you'll be covered, healthy or not, if something happens to you. That's why I have life insurance -- I don't have it because I expect to die. I have it because I don't expect to die, but might just do that regardless.

I have life insurance for my loved ones -- my husband and my children -- so that, when they are stressed over my death, they won't also have to worry about finances. I have life insurance so that my children can be cared for, my husband can live on his salary, and my family will be well. That's why I have life insurance.

If you don't have any idea of how much life insurance you should have, here's a great way to estimate:

1. Pay off all your outstanding debts. That includes your mortgage.

2. Leave enough money to pay for child care for any young children for at least the first year.

3. Replace your own salary for at least a year.

4. Make sure your funeral costs will be covered.

In general, that should be enough insurance. If you have other concerns -- a spouse or child who needs special care, or tuition costs for your children for either private school or college -- then you may need more insurance. But always carry at least the basic amount that will leave your family in a position to be able to continue without you -- even if they are emotionally devastated by your loss.


Posted by editor@insuranceguide101.com on June 29,2006 at 4:38 PM
My first question is: who would bury you? If you have relatives or friends that would feel responsible for your burial (and would have to pay up front), you should have enough life insurance to cover that cost. In fact, if that's the only financial burden you would leave behind, you could buy just funeral coverage.

Do keep in mind that if you are assuming that the proceeds of your home will cover your funeral, that's probably not true. In most cases, it takes months to clear an estate, even if it's relatively simple. That means that whoever pays for your funeral will have put that money out long before they receive any reimbursement.

This all assumes that you really have no one that you would like to leave your "estate" to. Your home would be a very valuable asset, especially if it was paid off. However, if you live in Canada, keep in mind that the government in many provinces will step in and become the "executor" of your estate if there is no will and no executor. The government will take a fee to handle your estate. In the end, the fee the government takes will normally leave very little to be distributed to any relatives or inheritors -- thus the reason why this might not even cover your funeral expenses.

Some things to think about.
Posted by Georgie Girl on June 29,2006 at 3:19 PM
I was thinking of purchasing life insurance but I don't know if it is worth it at this time. I have no husband and no children but I have recently bought a house. There really is no one to leave my house to.

I was thinking that I could put that 'little extra' away each month towards my retirement. What's your take on this? Any recommendations?
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