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Life Insurance: How to Pick the Right Policy For Your Family

It’s not something many of us want to dwell on, but life has no guarantees. At some point, we all will leave our loved ones behind.

Life insurance can provide some stability for those left to pick up the pieces -- especially for parents with children. Financial advisors often recommend that new parents sign up for life insurance policies to ensure that their child is cared for regardless of what happens to them.

Life insurance protection for your family

While life insurance might make sense, picking the right policy and settling on an appropriate amount of coverage can be tricky. There are different kinds of life insurance policies. And, each family has different needs. So, what’s the best policy and coverage for you? It depends.

Types of Life Insurance Policies

A life insurance policy requires that you pay regular premiums to an insurance company. When you die, the company will pay a set amount to a beneficiary you’ve selected. It could be your spouse, your child or a trust fund that you’ve established. Survivors can use the money to pay for funeral costs and cover future living expenses -- everything from food, housing and child care to college tuition.

As you shop around for insurance policies, it’s important to understand what’s available:

A whole life insurance policy, the more expensive of the options, provides coverage for your entire life and can build cash value, which can be used for retirement or emergencies.

A term life policy covers a specific period of time such as 5, 10, 15 or 20 years. These policies are more affordable and popular with families. After all, your obligations will change over time. When your children are young, insurance can cover the cost of child care, camps and college. Once they become independent adults, your financial requirements won’t be as great.

Financial experts recommend buying coverage equal to five to 10 times your annual household income. Before landing on a total, it’s best to review your family’s needs. What costs will your survivors have to cover, including debt and living expenses?  And, what’s your financial contribution to your family needs?

For many, that contribution would be an annual salary. But, life insurance is important for parents and others, who don’t draw a traditional wage, but care for children and manage a house.

CESI’s life insurance calculator offers an easy way to determine the total payout you’d need to support your family. If you’re married, your spouse’s annual income after taxes and age should come into play as you consider coverage.

Other points to consider:

  • Funeral costs: The average funeral can cost between $7,000 and $10,000, according to
  • Non-mortgage debt: This includes any credit card debt and car payments.
  • Emergency fund: Financial experts recommend putting away three to six months of living expenses.
  • College fund: has a simple calculator to determine your child’s college costs.
  • Average annual living expenses: This includes mortgage or rent, food, bills, clothing needs and other regular expenditures.
  • Social Security benefits: Estimate your future benefits on the Social Security Administration’s website.
  • Value of current liquid assets: This includes the total amount in savings and investments.

Be sure to shop around for the best rate and read all of the fine print. The National Association of Insurance Commissioners offers resources to help consumers better understand policies.

Once you’ve secured the best plan for you and your family, breath a sigh of relief. If the worst were to happen, your survivors will be protected long after you’re gone.

The CESI Team is committed to helping you reach your financial goals. If debt keeps you from living the life you dream of, contact us for a free debt analysis today and get started on the road to a brighter future!

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