One thing that people never want to think about until it is too late is what will happen to their loved ones when they are gone. However, many companies offer employees the ability to purchase life insurance at a reduced rate. Unfortunately, there is more than meets the eye when it comes to life insurance, especially when inspecting how much coverage you really have.
Perception and Reality
When it comes to life insurance, it is best to purchase life insurance based on how long you want the money to last. For example, if you are making all of the money in your family, you will want to make sure your spouse has at least five years of lost income to support them. This is the bare minimum and will allow them time to grieve and get their affairs in order to replace the income. However, according to Forbes, most families prefer to have closer to 14 years of coverage and believe they get that with their employers' benefits. What New York Life found, however, was that they fell short by over ten years, giving them less than the bare minimum of five years.
What is the Gap?
The difference between what you actually have in your employer's benefit package and what you need for your family is known as a life insurance gap. This gap will vary based on where you live, the size of your family, and what income bracket you are in. Regardless of the size of the gap, it needs to be taken seriously. Unfortunately, many people think that the life insurance amount being low is fine because it will cover the funeral expenses. However, you are not thinking about the big picture, which is how to make sure all of the bills are paid without that main source of income. You have a gap if you are looking at the amount you have and then realize you will not be able to cover your daily expenses (such as childcare and food), education expenses, and debt that you may have.
Resolving the Gap
Life insurance is something that is cheaper to purchase when you are young and healthy, as it is based on risks. Car insurance will charge you higher rates if you are a young male driving a sports car, and life insurance is no different. If you are at a higher risk of dying (either due to age or participation in a risky sport), your life insurance rates will be higher. This means you can resolve the life insurance gap by living a healthy life and buying secondary insurance through an outside company, like Watauga Insurance Inc. Finally, make sure that you sign up for term policies to help cover short term expenses and have a solid savings account to cover as well. These will help add cushions to the loss of income, especially if you do not want to get a second policy.