When paying for insurance, the premiums always seem too much and the payout never seems enough.
LIFE INSURANCE CAN BE A difficult subject. Thinking about what happens when you or someone you love dies can provoke strong emotions. But thinking about what would happen to the people you love if you were to die should help you to understand why life insurance is such an important part of a proper and responsible financial plan. Insurance is a tool that provides you with peace of mind, the knowledge that you will never leave behind worry, anxiety, or financial stress. It is never meant to replace a loved one, but instead to protect the loved ones left behind.
The reality is that many people are under-insured and should something happen to them, they are putting their loved ones at risk of financial distress, and possibly poverty. I like to believe that it is only a lack of knowledge and understanding that is causing those individuals to put their loved ones in that situation. As you go through this chapter, you will learn about the different types of life insurance and the options that exist to fit your needs. I also take you through some alternative ways to use insurance to reduce your investment risk and taxes.
There are two methods for calculating the amount of life insurance needed to provide for those you leave behind: the income-replacement method and the expense-elimination method.