What Does Life Insurance Adequacy Mean?
Life insurance adequacy refers to whether a certain party has sufficient life insurance coverage to prevent them from suffering significant economic losses in case someone of importance to them dies. This concept is highly relevant for people who are dependent upon the income of their spouses to economically sustain themselves and their family.
Insuranceopedia Explains Life Insurance Adequacy
The adequacy of a life insurance policy largely depends on the subsequent reduction in the household's standard of living once the insured person passes, and determining the necessary amount of coverage depends on an array of demographic, economic, and financial factors, such as number of children, education costs, and so on. In simpler terms, a household with two working adults generally would need less coverage than a household with one primary breadwinner, but other considerations are necessary to ensure a life insurance policy provides adequate coverage for the family in case the insured dies.