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Why Do I Need Life Insurance?

A part of every sound financial plan is being prepared for the “what ifs” in life. What if I want to send my kids to college? What if the markets tank? Or soar? What if I want to travel? Or retire early?

Or what if I die? Here is where life insurance becomes your front-line defense.

For most of us, life insurance is a way to replace income in case of an untimely death (though there are many other sometimes rather sophisticated uses of life insurance, like estate planning).

It’s pretty straightforward. Everything you plan to do—pay your bills, your mortgage, save for retirement, for your children’s college, for that special trip, everything—is predicated on your ability to earn income. Unless you inherited a lot of money, your lifetime earning potential is probably the single biggest asset you own. If you die, there is no more income. During your working years, life insurance simply allows you to shift the risk of loss of future income to an insurance company.

Understanding the basics of life insurance is critical to financial health. And a good place to start is with four questions.

  1. Why do I need life insurance?
  2. How much do I need?
  3. What type?
  4. For how long?

Now that we've answered the first question, let's try to answer how much life insurance coverage you need.
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