Life Insurance Adequacy
What Does Life Insurance Adequacy Mean?
Life insurance adequacy refers to whether a party has enough life insurance coverage to protect them from significant financial loss in the event of the death of someone important to them. This concept is particularly relevant for individuals who depend on the income of their spouse to financially support themselves and their families.
Insuranceopedia Explains Life Insurance Adequacy
The adequacy of a life insurance policy primarily depends on the potential reduction in a household’s standard of living after the insured person passes away. Determining the necessary coverage involves various demographic, economic, and financial factors, such as the number of children, education costs, and more. In simpler terms, a household with two working adults typically requires less coverage than a household with a single primary breadwinner. However, other considerations must be taken into account to ensure the life insurance policy provides sufficient coverage for the family in the event of the insured’s death.
