Your Life Insurance Should Keep Pace with Your Income Growth

If your career or business is going well and you are seeing regular increases in your take-home pay, don't forget that you may need to also bolster your life insurance to keep pace with your enhanced earnings.

Life insurance provides support for your dependents if you die prematurely. It allows your family to maintain the same standard of living they have become accustomed to, even after you are gone. And typically, the more someone earns, the higher their standard of living: you may purchase a larger house or more expensive vehicles.

If you think of the many ways your family depends upon your income and what would happen if it were suddenly taken from them, you will begin to understand the importance of life insurance.

If you have a stay-at-home spouse, they may need the death benefit proceeds from a policy to pay the mortgage or save for your children's education. The money your spouse receives from the death benefit can help them continue to care for your family in the interim while looking for a job.

Without that financial cushion, your spouse might have to sell the house or your children may have to delay going to college.

To be certain that you adequately provide for your dependents, you should increase your life insurance as your salary increases. The ratio between your coverage amount and your salary decreases, as the latter gets higher.

So, if you begin with a policy providing a death benefit equal to 10 times your salary, by the time you reach the age of 50 and are earning twice as much money, the coverage amount will have decreased to only five times your salary. 

Coverage still needed beyond age
Another misperception regarding life insurance is that once you turn 65 and your children are grown, you no longer need it.

Remember, most people live up to every penny they earn. As their income increases, they tend to increase their standard of living via expensive new cars or second homes, so that at 65, many of them could still conceivably be carrying mortgages or auto loans.

In order for the surviving spouse to maintain their current lifestyle, the insured would have had to increase their coverage to keep pace with their spending.

When considering life insurance needs, there is also the issue of longevity. Today, more people are living into their eighties and beyond. If the insured dies at 65, the surviving spouse could live another 20 to 30 years, in which case they would need the death benefit proceeds to cover living expenses.
​
It is not difficult to see that there is a real need to have your life insurance keep pace with your salary. You should review your life coverage with us on a yearly basis to develop a plan to ensure your dependents will remain financially comfortable after your death.