Life Insurance

What You Need to Know to Get Started

Why might you need life insurance? The simple answer is that if someone would suffer financially if you were to die, then you need life insurance to care for them when you’re no longer able to.

A life insurance policy provides cash (known as the death benefit) to your loved ones at a time when they need it most. This cash replaces your income, and can help your family with a variety of other important financial obligations like funeral expenses, mortgage payments, and other uses that will continue after you’re gone, such as college tuition for your children. In short, the proceeds from a life insurance policy can provide a safety net for those who depend on you every day.

To help you get started, print a copy of our Needs Analysis. You’ll use it to come up with a program that will give you and your loved ones great peace of mind. The first step is to figure out just how much life insurance coverage makes sense… but the answer is different for everyone, so this process will be tailored to your particular situation and needs. There is no “one size fits all” approach to this very important financial decision. That’s why working with a professional, knowledgeable, independent agent is so vital.

So where to begin? Let’s start by considering the people for whom you’re getting life insurance in the first place: your dependents – minor children, a spouse who depends on your income as well as his or her own, or your own children from a prior marriage. You need to consider the impact of your premature death on their lives.

Home Mortgage
Will your family be able to stay in your home when your income is no longer coming in? Will your children be able to stay enrolled at their school? These are important considerations, especially to small children. So, the first consideration is what it would take to pay off your home mortgage. Write that number on your worksheet under “Mortgage Balance.”

Funeral Expenses
We’ve all heard about the “high cost of living,” but most people are completely unprepared for the staggeringly high cost of dying. We recommend pre-planning for funeral arrangements if at all possible, to save your loved ones the stress of having to make what often turns out to be incredibly large financial decisions during an emotionally trying time. There’s an old saying that you shouldn’t shop for food when you’re hungry – and, likewise, your family shouldn’t have to make major financial decisions when they are grief-stricken.

Currently, average funeral costs are range to more than $10,000, and can reach much higher amounts. We recommend that you plan for final expenses of $10,000-$20,000 to be safe. Write that number down under “Funeral Expenses” as an estimate or, if you have your own data, put that down for comparison.

Income Replacement
Most people never consider how their loved ones will replace lost income should something tragic happen. Many people believe that Social Security will replace their lost income but, for most people, this is just not going to be sufficient. We recommend that you visit the website that allows you to estimate your Social Security survivor benefits and follow the process to find out an approximate amount that your estate might receive. But remember that this figure represents only part of the income that you’ll need to replace.

Calculating how much life insurance coverage will be needed to replace your income is not as simple as just coming up to the amount of your current salary. For example, you need to think about how long you’ll need to replace this income, or how much income you really need to replace. Start by taking your annual gross income divided by 5%: for example, $40,000 income divided by 5% = $800,000. With this approach, a sum of $800,000 placed in conservative investment vehicles could generate $40,000 per year for your survivors. Using this formula, you can identify the amount of money that can generate the necessary annual income without a major deterioration of the principal sum. Doing so will essentially create an income stream for life for your family, and assures that there will be money available for future needs as well.

Emergency Fund
An emergency fund provides some additional cash that can be used for the unforeseen things that happen in life – the car suffers a major breakdown, the roof needs replacing, etc. Murphy’s Law dictates that if something can go wrong, it will – and it will happen at the worst possible time. We recommend that you plan on having a six month income buffer to be prepared for these unforeseen contingencies.

Next Steps
So, now that you’ve begun the process of really “planning” for your life insurance needs, you can have a much better discussion about your individual situation. So many people buy policies that sound like “nice round numbers” or “seemed like the right amount” or, my all time favorite, “that’s what the guy next to me bought.”

Remember, the numbers you’ve developed here are just the starting point, not the final destination. We will work with you to determine what amount of life insurance coverage makes the most sense for you and, equally importantly, what monthly premium makes the right sense for your budget.

Your situation is unique, and shouldn’t be handled with a cookie cutter approach. Contact us to schedule a no obligation consultation to review your data, and you’ll see that we can help!


Moscato & Associates and Foresters Equity Services are separate and unaffiliated entities. 

Securities offered through Foresters Equity Services, Inc.  Member FINRA, SIPC. 

Branch Office located at 6640 Lusk Blvd. Suite A202, San Diego, CA 92121

950 Danby Road, Suite 102, Ithaca, NY is a not a branch office or an affiliated location of Foresters Equity Services, Inc.