Protecting assets: Life insurance

Making a financial plan includes arranging to have enough insurance to protect the wealth you have accumulated, ensure your dependents’ financial security, and perhaps provide a legacy.

Life insurance is designed to replace the income and investable assets you would have provided had you continued to live. At the least, it can help your family or friends cover your final expenses. And if you have adequate coverage, the death benefit can cover your dependents’ day-to-day needs and be invested to pay for bigger costs, including college educations for your children. In addition, life insurance can provide the liquidity your heirs may need to pay potential estate taxes.

One question you need to answer is how much insurance to buy. A life insurance calculator can help you estimate the amount. But it won’t take your individual needs into account, which is one reason to seek professional help. Together you can calculate your loved ones’ needs, identify other sources of income they can count on, and determine the size of the policy you need.

You also need to find a balance between the ideal and the practical. If insurance costs more than you can afford, you’re more likely to let the policy lapse. That wipes out the potential protection. But if the policy is too small, your beneficiaries may have to use investment assets earmarked for future goals to pay living expenses.