Life insurance provides financial support to your dependents in the event of your demise, including the provision of immediate cash upon your death. Here are some factors you should consider when getting life insurance:
Long-Term Needs
Number of Dependents: The coverage amount you need is based on the number of dependents you have.
Your Dependents’ Living Expenses: To get an estimate of how much your dependents’ living expenses would be after you pass away, consider the income you earn. From this amount, deduct the value of any property they would inherit from you and any other public or private sources of coverage.
Age of Dependents: If you have young children who have a long time to go until they reach college, you’ll have to purchase a decent amount of coverage because it’ll take them time to become self-sufficient.
Short-Term Needs
Will There Be Any Assets Immediately Available to Your Dependents? : After your demise, your dependents may not have immediate access to assets like funds in pay-on-death or joint bank accounts or stocks in joint tenancy or transfer-on-death basis. If this is the case, make sure you at least purchase adequate life insurance coverage.
How Long Will It Take for Your Inheritors to Get Possession of The Property? : Having insurance is a good idea if your property is going to be transferred by will because the property will probably be stuck in probate for a long time. In such a situation, life insurance can provide your family with the cash they may need, immediately.
The Debts and Taxes Associated with Your Estate: If your estate mostly has non-liquid assets, such as collectibles and jewelry, and no life insurance, it will be difficult for your dependents to meet all the urgent bills. It takes time to get cash by selling such non-liquid assets, due to which there may not be enough cash for your dependents to use.
Business Needs
If you own a business that your inheritors may want to continue after your demise, having life insurance would help them cover the shortage of cash the business may initially face after your passing.
If your inheritors are unlikely to continue the business, determine whether your death will affect the value of the business and if insurance would be required to keep the business running until it’s sold. If you’re a co-owner, your dependents can use life insurance proceeds to purchase co-owners’ interests.