Inflation has increased budget costs for most Americans, which should be considered when evaluating life insurance coverage.
Insufficient insurance means that loved ones would not be able to cover the costs incurred due to debt or perhaps the loss of the family home.
“Life insurance helps provide resources for coverage in the event of an untimely death…to care for and support the family,” Sandi Bragar, chief client officer and partner at Aspiriant, told Yahoo Finance Live (video above). “In this rising inflation environment, those costs have become much higher and because there is a gap, we are filling it with life insurance.”
A rule of thumb is to have 10 times your annual life insurance income, according to nonprofit insurance organization Life Happens, to cover non-funeral expenses like housing, mortgage, child care, health care and education, so your family won’t go into debt.
Because food, gas and housing costs have risen, consumers should evaluate their life insurance to make sure it’s adequate, which is why, while 10 times your salary is recommended, your coverage amount should rise with the cost of living.
Some financial planners recommend a combination of term and permanent life insurance policies. As the life insurance term expires, a permanent life insurance policy offers lifetime coverage and earns cash value that can be used during the policyholder’s lifetime in the form of a loan or withdrawal.
More Americans are using their permanent life insurance policies to help them weather inflation and avoid tapping into retirement accounts hit by stock market volatility this year.
“You want to look at all the different types of policies that are out there and find the one that best fits your needs,” Bragar said. “One thing we like to do with clients is life insurance policies. This allows the client to reduce the overall cost of that life insurance package, but to meet their anticipated funding needs for their survivors should an untimely event occur, [if] there should have been an untimely death.”
“For example, if a client needs $1.5 million in insurance, instead of buying one $1.5 million policy,” Bragar said, “we buy three $500,000 policies, maybe with different terms.”
Rhonda is a senior personal finance reporter for Yahoo Money and an attorney with experience in law, insurance, education and government. Follow her on Twitter @vritesronda
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