The reason for having life insurance coverage is to protect the lifestyle and security of loved ones in the event that the bread winner passes away. No one wants to consider the possibility of having to liquidate assets while coping with grief. At the difficult time of a loved one’s death, knowing that the bills will be paid and the household will be maintained is an important source of comfort and support. In order to figure the necessary cover, it is necessary to figure out the cost of maintaining the way of life for a number of years.

As a general rule, it is better to purchase a higher amount of cover through term life insurance to carry the family through the critical years until children become independent. Whole life is another option that can provide some income for the later years. For a young family, term life cover will usually be much more affordable for the large amount of benefit needed.

Specifically, one must add up the yearly cost of maintaining the family and the anticipated expenses for the coming years. Some employers provide a certain amount of cover for their workers, but it is wise to add to this amount so that the family will be well protected. Figure out how much the family will need.

This must include:

  • Mortgage payments or rent expenses
  • Utility bills
  • Food and other necessities
  • Educational fees and child care
  • Funeral expenses
  • Car expenses or other transportation costs
  • Money for holidays and vacations
  • The cost of retiring any loans or credit cards

Once yearly expenses are added up, multiply by the number of years the family will be without the salary of the bread winner. It is best to assume that this number will be substantial.

While figuring out the amount of life insurance cover, it is a good idea to also consider cover for serious illness. This will help to protect the family’s income if the bread winner is struck with critical illness and unable to work for a lengthy period of time.

In order to avoid having to pay inheritance tax on insurance payouts, families can place the money in trust. This removes the death benefit from the individual’s estate. At the same time, it is possible to appoint trustees and designate who will receive the money.

Another major issue that needs to be considered is the effect of inflation on the cost of living. While it is not possible to anticipate every contingency, it is important to consider the fact that the cost of living is likely to continue to rise. Adding a certain percentage as a hedge against this contingency will help to keep the family secure.

To ensure that enough cover is available to protect loved ones, it is best to consult with a qualified advisor or visit some life insurance comparison websites. Protecting the security and welfare of the family is one of the greatest obligations one faces. It is also among the greatest of gifts that anyone can leave.