Life insurance awareness month came to a close in September, but now is no time to start forgetting about the need for life insurance. 95 Million Americans are going without any life insurance coverage; that is an astounding 41% of the adult population. Unfortunately those who do have coverage have significantly less than historical averages. To compound the issue, consumer debt is on the rise. According to the most recent report from the Federal Reserve, as of August 2013, there has been a 7.9% annualized rise in consumer loans. While the trend of consumers taking out larger loans is good for economic recovery, the added debt put a significant strain on households that are now building more debt than the 2008 peak.
When calculating if you need life insurance, and how much life insurance you should have, the two major factors are income replacement and outstanding debt. While the level of income replacement has some flexibility according to the needs of your family, debt is not flexible.
Ideally you know how much debt you have, and how much your loved ones will need to repay in the event of your death. It is sound financial planning to continue to re-assess your needs frequently as your living conditions change, and as your debt levels change.
With the current trends of debt on the rise and personal life insurance on the decline, it seems clear that many consumers are taking significant risks with their family’s future. Term life insurance can provide a temporary safety net for your family and loved ones. When insuring for debt, term life is often the first choice because you can line up the coverage duration of the Term Life Insurance to the life of your debt. More long term solutions include Whole Life or Permanent Life insurance or a mix between term and whole with Universal insurance coverage. If you haven’t started assessing your own debt situation now is a good time to start.