Average Joe & Jane - Needs Life Insurance

Do you have enough life insurance to provide for your family if something were to happen to you? This is a question I often receive and unfortunately, many people have no idea. After all, death and pushy life insurance agents are two things most people would probably rather not deal with.

It's an important question though. If you don't have enough, you could leave your family in a difficult financial predicament. If you buy too much, you could end up wasting thousands of dollars on something you don't really need. When determining how much life insurance to buy, here are some common myths to steer clear of:

Everyone needs to have life insurance - Life insurance has two main functions. The most common is to provide for people who are financially dependent on you like children and perhaps a spouse. The second is to pay estate taxes so that your heirs won't have to sell property or a business to do so. 

You need life insurance to pay off your debts - This is a common myth. Many people are concerned about their heirs inheriting their credit card or other debt they may have accumulated. While debts can reduce the inheritance that you leave your heirs, excess debt generally dies with you unless the debt was joint, community property or had a co-signer/guarantor.

Everyone needs life insurance to pay for your funeral and other final expenses - Purchasing a life insurance policy for this purpose can be the most expensive way to fund it. If your heirs will be inheriting any savings or other liquid assets, they can always use them to pay these costs. But if your debts wipe out your estate, a small final expense policy may make sense to avoid leaving your heirs with this burden.

Everyone needs enough life insurance to fully replace their lifetime income - Life insurance agents tend to love using this method of calculating life insurance needs because it's quick and generates large amounts of insurance needs.

You don't need to worry about your life insurance policy after you purchase it - People tend to buy life insurance and then forget about it, but a change in your financial situation or a birth, death, marriage, or divorce in your family could require you to update your beneficiaries or the amount of insurance you need. Since rates have been coming down for years due to longer life expectancies, it may also be a good idea to see if you can purchase the same amount of insurance for a lower cost, especially if your health status or lifestyle has improved. 

Protecting your family is important but so is making sure you're not wasting money on insurance that could be used for other financial needs. The key is to find the right balance for you. Don't let these common myths throw you off.