Who need a life insurance?
If the family's primary wage earner has so much insurance that the family would be better off, financially speaking, after his or her death, the insurance was purchased for protection, which is not biblical.
Life insurance needs will vary as family financial goals, needs, and resources change. Nevertheless, a wage earner should have enough life insurance to replace the financial value that he or she provides to the people who are dependent on him or her.
Although the purpose of insurance is to provide, it is not intended to provide with an overabundance.
Again, this provision is to be used to meet a need if a potential loss would be excessive for the survivors of the family's primary wage earner: it can provide for unexpected costs that the survivors could not pay alone, and it frees surplus funds.
How much is needed?
Although the amount of insurance should be determined by two things primarily—the amount of coverage needed and the affordability of the premiums—the following considerations should also be evaluated when deciding how much insurance to buy.
§ The ages of the children. The younger the children are, the longer they'll need to be supported if the primary wage earner dies.
§ The income capability of the surviving spouse.
§ Existing debt, current lifestyle, income, and other sources of after-death income besides life insurance.
A very simple rule of thumb to determine the amount of life insurance needed is to take either the amount of money a family would need annually in the event of the death of the primary wage earner or the annual salary or earning of the wage earner and multiply that amount at least by twelve. This is the minimum amount of life insurance that is needed.
If the insurance money is then invested with a 7 to 10 percent return, it would probably provide the necessary income per year that the family would need.
Who needs it?
An important principle to remember is that if insurance dollars are limited, families need to devote their insurance allocation to covering the primary wage earner of the family.
Insurance should take no more than 5 percent of families' Net Spendable Income (Gross Income minus tithe and taxes). The 5 percent figure does not include house insurance or automobile insurance and assumes that the family has group health insurance with the primary wage earner's employer.
If the husband is the family's primary wage earner and he has an adequate amount of life insurance, any surplus funds may be used to insure the wife at two times the annual salary of the primary wage earner in order to provide funds for the cost of her burial. Unless a family has enough money in savings to cover the funeral costs, such an expense could place them in financial bondage. In addition, coverage on the wife could provide extra funds to give the husband a time of readjustment and to care for the children until he could find a caretaker for them.
However, if a family depends on the wife's salary, she probably needs to be insured. The amount of insurance coverage she will need is much like that of the primary family wage earner: at least five times her annual salary or the financial amount that she contributes to the family.
Concerning the need to insure children, there are two logical reasons to have insurance on children: to cover burial expenses and to guarantee that they will be insurable in later years. Any amount over this minimum is unnecessary.
God said that we are to be responsible for our families, even in the event of our untimely death.
The fact that we do not know exactly when we are going to die and that we may not have the economic resources to provide for our families after death is good reason for buying life insurance adequate to provide for the family in case of death.