Why Should I Do a Needs Assessment for Term Life Insurance?
Often, when I speak with people who are shopping for term life insurance, many of them are looking into term life insurance for the very first time. One of the biggest concerns most have is not knowing how much term life insurance coverage they should have. I always say that at the end of the day, your life insurance policy has to be affordable. It does not make sense to have a policy that is too expensive and you can’t keep up with the payments. Regardless of what a person’s budget is for life insurance, I always take customers through what we call a needs assessment.
A needs assessment is a very helpful tool when shopping for life insurance. It helps to create a picture of your present day financial situation. It will also show you where the money from a life insurance policy would go if you suddenly passed away.
Below, I have outlined the types of questions you want to ask yourself to help you determine how much you should consider having. Now, the key word is consider. Sometimes with a needs assessment you may come up with a very high dollar estimate of how much life insurance you should consider having in place. For some, that amount of coverage may be too expensive. But the reason you want to do this exercise is to have a better understanding of how much money your family or loved ones would need to continue on with their lives as they are today. Here are three important areas that I believe will help you with the types of questions you should be thinking about when shopping for the right term life insurance coverage:
Family: a. Do I have a spouse / partner? b. Does this person have an income or stay at home? c. Do I have children? If YES how many and what ages? d. Do I want my children to go to college in the future? e. For any children in college today, how much will I owe for their education?
Income: a. Who is the primary income earner in the household? b. How much is my income per year and how many years would I want to replace my income if I pass away? c. Does my spouse or partner have an income? If YES how many years would I want to replace their income if they pass away?
Liabilities / Debt: a. If I have a mortgage on a home, what is the outstanding balance I owe? b. Do I have any other loans that my family would be responsible for paying if I pass away? c. Do I have any other properties such as a rental property that my family would be responsible for? d. What other bills or debts do I need to think about that I am responsible for today?
When you are shopping for term life insurance quotes, try to spend some time thinking about these questions above. What do you take care of and provide for, day after day, week after week, year after year? How will your family take care of themselves and all those responsibilities without you or your income?
About the author: Dan Cody has been in the life insurance business for over 7 years. He loves playing a variety of instruments including the guitar, bass, drums, and piano. He also supports cancer research foundations and volunteers at local pet shelters. Dan enjoys helping customers understand life insurance, so they can find a solid policy that fits their needs. You can reach Dan at 1-800-651-1953 or DCody@Pivot.com.