Q: How much life insurance should an individual own?  

A: "Rule of thumb" suggests an amount of life insurance equal to 6 to 8 times annual earnings. However, many factors should be taken into account when determining the right amount of life insurance for you and your family.

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Important factors include:

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• Income sources and amounts other than salary earnings

• Whether or not you are married and, if so, what is your spouse’s earning capacity

• The number of individuals who are financially dependent upon you

• The amount of death benefits payable from social security and an employer-sponsored life insurance plan

• Whether any special life insurance needs exist - (mortgage repayment, education fund, estate planning need, etc.)

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Calculating the correct amount of life insurance to buy in Minnesota is not as simple as it appears. We recommend contacting City Insurance at: (763) 582 1888 to help determine the right amount of coverage you need. As an independent agent, City Insurance has unbiased advisers that will help you avoid buying too much, show you appropriate and optional coverages for your need, and recommend a company that will best serve your interests in MN.

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Q: What about purchasing life insurance for a spouse or children?  

A: In certain circumstances, it is advisable to purchase life insurance for children. However, generally such purchases should not be made in lieu of purchasing appropriate amounts of life insurance on the family breadwinner(s).

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It is of utmost importance that the income-earning capacity of the primary breadwinner be fully protected, if possible, through the purchase of the required amount of life insurance. This should be done before purchasing life insurance for children or on a non-wage-earning spouse. Life insurance on a non-wage-earning spouse is often recommended for the purpose of paying for household services lost due to this individual’s death. In a dual-earning household, it is important to protect the income earning capacity of both spouses. 

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Q: Should term insurance or cash value life insurance be purchased?  

A: This depends on your personal circumstances.

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First, recognize that in any life insurance purchasing decision, two questions must be answered:

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1. "How much life insurance should I buy?"

2. "What type of life insurance policy should I buy?"

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The first question should always be initially resolved. For example, the amount of life insurance that you need may be so large that you can only afford it through the purchase of term insurance, since term insurance has a lower premium.

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If your ability to pay life insurance premiums is such that you can afford the desired amount of life insurance under either type of policy, then it is appropriate to consider the second question — what type of policy to buy. Important factors affecting this decision include your income tax bracket, whether the need for life insurance is short-term or long-term (e.g., 20 years or longer), and the rate of return on alternative investments possessing similar risk. 

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Q: How does mortgage protection term insurance differ from other types of term life insurance?  

A: The face amount under mortgage protection term insurance decreases over time, consistent with the projected annual decreases in the outstanding balance of a mortgage loan. Mortgage protection policies are generally available to cover a range of mortgage repayment periods – (e.g., 15, 20, 25 or 30 years.) Although the face amount decreases over time, the premium usually remains the same. Further, the premium payment period is often shorter than the maximum period of insurance coverage — for example: a 20-year mortgage protection policy might require level premiums be paid over the first 17 years. 

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Q: Can an existing life insurance policy be used to provide for the repayment of an outstanding mortgage loan?  

A: Yes. An existing policy, either term or cash-value life insurance, can be used for many purposes, including paying off an outstanding mortgage loan balance in the event of the insured’s death. Although a lender may offer a mortgage protection term policy to you, the lender rarely requires it.

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Credit life insurance is frequently recommended in conjunction with taking out an installment loan when purchasing expensive appliances, a new car, or for debt consolidation.

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Q: Is credit life insurance a good buy?

A: Credit life insurance is frequently more expensive than traditional term life insurance. If you already own a sufficient amount of life insurance to cover your financial needs, including debt repayment, the purchase of credit life insurance is normally not advisable due to its relatively high cost.