Life Insurance: Do You Have Too Much?
Posted on December 26, 2008
Filed Under Mortgage lending education |
When you discuss your life insurance needs with a broker, are you sure you are asking the right questions or do you feel that you are still confused? Let’s take a look at the function of life insurance and see if yours is working for you.
The Four Reasons To Have Life Insurance
It provides security in case the main breadwinner in the family dies.
It provides money for charitable causes
It could pay future estate taxes
It could also provide a pension
If your life insurance isn’t capable of replacing your main breadwinners’ income, then you need to have more. The situation is even more important if you have children at home. There are many people who fail to protect their loved ones in this way. Also being able to pass on life insurance money to the next generation, can significantly lighten the financial load for your loved ones.
The second reason is giving to future generations. By specifying donations, you can provide relief to your favourite charitable organization.
Life Insurance Can Help With Taxes
If you’ve accumulated a lot of worldly goods, your life insurance can help to pay for the estate taxes. If you are unprepared, your heirs may face thousands of dollars in taxes after your death. Life insurance is a great way to pay those death taxes without eating into the estate itself.
Reassess Your Life Insurance After Your Working Years
Once you retire you may not need life insurance. If you have sufficient financial assets and your mortgage and children’s education are paid, then you can reassess your life insurance at that time and perhaps drop it entirely. But it is always advisable to consult a broker before making any major changes in your portfolio of life insurance.
How To Calculate How Much Life Insurance You Need
If you have a growing family, the life insurance coverage has to generate enough income to support that family.
When you die the life insurance coverage becomes the life insurance capital and that capital has to be invested conservatively to generate the needed income.
Let’s say you leave $1 million to a spouse and three children which, invested at 5%, will generate $50,000 before taxes. Is that sufficient? If so, that’s what you need.
But What Happens To This Life Insurance Capital?
Here’s one scenario. Your children grow up and leave. Your spouse their converts the $1,000,000 into an annuity or just continues the income as a pension. And that is one way you can be helped by life insurance.
Comments
6 Responses to “Life Insurance: Do You Have Too Much?”
Leave a Reply
How much will 10 million in life insurance be worth after the owner is deceased?
is it worth 10 million? How much will the heirs get? how does one get so much life insurance?
10 million - is this a trick Q?
References :
They pay an awful lot of money for it I guess. Almost in a gamble that the person will croak or have a severe injury. Usually, the person being insured must be capable of making that type of money or be an athelete or business owner with significant financial considerations which are made possible by the involvement of such an individual. Although, I'm sure with a high enough payment, anything is possible.
If 10 million is the face value of the policy, there may be riders in the policy which make it worth more than that… Or the amount may be 5 million and the max payout may be 10 million. It's hard to say. The amount payed would vary by how many heirs, which state, and the federal income tax code.
References :
Just a whole bunch of B.Sssing, I don't know what I am talking about. I have no need for a 10 million dollar life insurance policy. But if anyone wants to add me as an heir, I'd appreciate it.
Assuming you're talking about whole life insurance, not term life insurance, unless the deceased is under the maximum age for the term plan, then the policy is worth $10 million. Of course there will be lots of things you have to pay for out of that, but after the expenses you keep the rest, if there is any, which there should be plenty with $10 million. If by heirs you mean beneficiaries, then they get however much the policy holder left them. It may be one person to receive 100%, two at 50% each, two with one at 60% and one at 40%, or any other combination. As far as where to get it, I'd imagine a policy that large would be hard to come by, but I'm sure it's out there. The premiums would be enormous though. If you bought the policy at 20 years old, and paid it until the typical paid in full date of your 65th birthday, the monthly payments would be over $18 thousand. That's nearly half of what lots of people make in a year. That much is totally unecessary, and to be honest I wouldn't be surprised if you had to make a huge down payment just to qualify, providing such a policy even exists.
References :
To the dead person? Not much.
References :
How many times are you going to ask about this?
References :