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The Importance of Term Life Insurance for Young Families

By Dory Rodriguez on December 11th, 2009

There are numerous financial responsibilities if you are raising a family in today's busy world, and term life insurance can play a significant role in a growing family's financial plan. A premature death of the wage-earner or caregiver could leave surviving family members unable to manage financially. Life insurance can offer peace of mind by providing immediate financial protection.

The US Department of Agriculture's Center for Nutrition Policy and Promotion did a 2008 study called Expenditures on Children by Families. The study demonstrated that a middle-income, family with a child born in 2008, can expect to spend $291,570 on food, shelter and other necessities through age 17.

Term Life Insurance Provides Cost-Effective Coverage

Term life insurance is a good option for those with needs that will disappear or decrease over time. Those in the family-formation years often find term life insurance a good choice because of the lower annual premium costs compared to whole life insurance. This is especially true for a young family on a tight budget because term life insurance provides higher amounts of coverage when the need for protection is greatest. For example, if paying for college tuition is a major financial objective, and the family does not see a need for life insurance coverage after graduation, then it might make sense to buy a term policy that provides coverage through the college years.

How Much Coverage Do You Need?

The first step in determining how much life insurance coverage that a wage-earner or family caregiver should buy is to calculate immediate cash needs. These needs may include paying off a mortgage or other debt, final expenses, an emergency fund for approximately 3-6 times monthly household expenses, and other financial commitments. The family should also calculate replacement income need, and then decide how many years the survivors might need the income.

As a rule, income should last until the children are 18-22. Other families might want the income stream to last until the spouse reaches retirement age, especially if the spouse was the caregiver and is unlikely to reenter the workforce.

Transitioning to More Extensive Coverage

Many term life insurance policies have a feature, or rider, that allows the policy to be converted into a permanent insurance policy. The change from term life insurance to a permanent life insurance policy provides continued insurance protection at a higher premium amount for as long as the insured lives.

Permanent life, or whole life insurance, policies have a savings component that can build cash value. The savings account feature can help families meet financial emergencies, pay for special goals, or provide income for college or retirement years.

If a family begins with term insurance and realizes at a later date that they want to convert their insurance policy to a permanent or whole life insurance policy, they can typically convert all or a portion of the term insurance to a permanent insurance policy if their coverage has the conversion feature.

Term insurance is the more affordable option of insurance coverage. When a family is looking at a term life quote, it is important to know all of the benefits, or riders, included in the quote. It is also important to know what, if any, conversion options are available. To compare term life insurance or whole life quotes visit www.compuquotes.com

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