If you purchased a home within the last few years, it is essential for you to have adequate life insurance coverage. This is especially true because home values are dropping, which means your equity is shrinking. Therefore, you must ask yourself these difficult questions. What happens if my spouse dies? Will I have enough income to pay the mortgage? If not, you will be faced with having to sell your home. Many people, however, stretched themselves to the limit to buy their home. Others have taken a chunk out of their equity through refinancing. Either may lead to two dilemmas if you have to sell: 1) We’re currently in a buyer’s market, which means selling your home won’t be so easy, 2) Shrinking equity may leave you “upside down” in your mortgage, owing more than your home is worth. Remember, you need to add in the cost of selling your home, which will be costly too. In the case of the death of a spouse, either of these predicaments could lead to foreclosure and even bankruptcy. For many, only having adequate mortgage and/or life insurance coverage will save their home.
Why Life Insurance? Regardless of what other insurances you have, only adequate life insurance coverage will enable you to continue to pay your mortgage and help you cover other living expenses should you lose your spouse. This means being able to maintain your lifestyle and putting your kids through college.
How much life insurance should you have? One way insurance agents often suggest is to buy coverage equal to five times your yearly income. Having this amount of insurance meets most families’ current money needs. This formula, however, assumes there is group life insurance from work for an amount equal to one year’s salary. It also assumes that the person who will get the life insurance payment is eligible for social security survivor benefits. If both the husband and wife work, both should have coverage. You need more insurance on the person with the highest income.
We believe, however, that you should factor in other considerations including your budget and anticipated inflation. Your agent should look at your family’s financial goals, size of your mortgage, property taxes, ages of your children, sources of income other than salary, savings, your family’s health and the cost of insurance. Therefore, there really isn’t an exact formula for the amount of insurance you need. Thus, it is vital for you to have an insurance agent who is knowledgeable, trustworthy, easy to talk to and willing to put the necessary time into helping you make the right decision for your family. The important thing is to not procrastinate. It is devastating to lose a spouse. Why make it worse by not being able to provide for the remainder of your family, too?
Gregg L. Goodman, LUTCF is the CEO of the Gregg L. Goodman Insurance Agency, Inc. He is an agent for Farmers Insurance and provides life, health, homeowners and auto insurance, as well as commercial insurance programs.
For more information, he can be reached at 661-254-6739.