Who Needs and Qualifies for Life Insurance?
September 20, 2008 | Insurance
If you’re wondering whether or not you should buy life insurance, ask yourself this one question: “Would my death leave anyone in a financial bind?” If you answer “yes”, it may be time to get serious about shopping for life insurance. Life insurance can offer peace of mind, ensuring that your debts or loved ones will be taken care of in the event of your death. But before you buy it, you need to ask yourself if you’ll qualify, and whether you should purchase term or permanent life insurance.
Who Needs and Qualifies for Life Insurance?
The rule of thumb is once you become a parent, any adult in your house earning income should have life-insurance coverage that will last until your youngest child completes college. If you have large financial obligations such as high credit-card debt or a mortgage, you could use life insurance to ensure that debt is covered. Because life-insurance death benefits are exempt from federal taxation, many financial planners often use clients’ life-insurance benefits to help pay for the estate taxes generated upon the death of a loved one.
To determine if you qualify, most life-insurance policies require you to undergo a medical exam primarily to check for high cholesterol and blood-sugar levels. Prior to issuing a policy the insurance company will also check things such as your medical history, hobbies, credit rating, alcohol-related issues and driving record, just to name a few. Factors such as age, smoking and prior health issues can also drive up the premiums on a policy.
The two primary methods used to determine the amount of insurance an individual requires are the ‘human-life approach’ and the ‘needs approach’. The first projects an individual’s income through his or her remaining working life expectancy, and then the present value of the life is determined by means of a discount rate. With the needs approach, all reoccurring and unusual expenditures are examined to determine the amount of life insurance needed.
by Steven Merkel
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