How to Prevent a Life Insurance Coverage Gap
The majority of U.S. citizens do not have enough life insurance; in fact many of them don’t have a life insurance plan at all. The most common reason for this is that people have financial priorities that come before protecting their loved one in the case of their death. However, another common reason is that many people do not believe they can afford a life insurance policy.
What is the Life Insurance Coverage Gap?
A life insurance coverage gap exists if you are unable to afford the life insurance policy that you should have in order to adequately provide for your family in the case of your death. If you have an existing life insurance gap, your estate may not be fully provided for if you pass away. In fact, most U.S. families say that 14 years of coverage to make up for lost income would be ideal, however many only have enough to cover 3 years. This was the finding in the study done by New York Life. The study looked at the shortfall between the amounts of coverage that families have compared to what they should have in the case that the major breadwinner of the family passes away. The median shortfall came out to $320,000 in 2013, which has increased substantially from only 5 years ago.
Why Life Insurance is So Important
The main reason for life insurance is in order to protect those that financially depend on you, which means your children, spouse or even parents in this case. Although life insurance is also used in order to cover funeral expenses, its main importance is to help pay the bills without the breadwinner’s salary. The recommendation is to have at least 10 times your salary and a high end of 20, however this number varies depending on what you need the life insurance benefit for. For instance, paying for college tuition.
The Good News
Luckily, contrary to popular belief, life insurance can actually be quite cheap if purchased properly. A term life insurance policy is a type of life insurance option that will protect your family. It is one of the most affordable and simplest options out there for you. Purchasing one will allow you to pay a certain amount each year for typically 20 to 30 years in return for receiving a benefit that is tax-free and guaranteed. For instance a 35-year-old male who is healthy will only pay $220 a year for a 20-year policy that gives a $250,000 benefit. However, keep in mind that term life insurance will become increasingly expensive if you decide to use it as a permanent solution. Instead, consider using a term life insurance policy to add protection during your most needed time, such as when your kids are young.
You may want to consider a credit union or risk pool as an alternative option to life insurance. However, keep in mind that you need to fully understand these options before committing in order to make an informed purchase and avoid risk.
Put More Into Your Savings Account
One of the surest ways to close the life insurance gap is to save money in order to supplement the insurance that you do have. One such way to do this is to ensure that you continuously put funds into your retirement savings accounts in order to provide essential funds to your estate in the case of your death. If you are able to save enough money in order to sufficiently cover your debts as well as provide for your family then a life insurance policy will become less concerning.
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