We often wonder just how much life insurance do I need. What we ought to ask is how much cash my family will need after I’m gone. You can’t target the perfect amount of life insurance you should buy right down to the penny. But you can make a quick guesstimate if you consider your present financial situation and envision what your family will need in the long term.
It is best to find your optimal life insurance policy amount by figuring out your long-term debt and then subtracting your financial assets. The remainder is the hole that life insurance will have to fill. Years ago, experts advised that individuals carry a life insurance policy with a death benefit of between six and eight times their yearly household income. Today, however, in light of escalating property prices in many areas and spiraling university expenses, most advisors now recommend ten times income.
Evaluate your Debts
When you’re planning on buying life insurance, you’ll want to take into account how much money your loved ones are going to need in the event of your passing away. When you die, your beneficiaries are going to have to settle all your debts – your car loan, mortgage, credit cards, etc. In any policy you consider, you want to ensure you have enough money to cover the expense as well as any extra interest or penalty charges that get added to the loan.
If you were no longer there as breadwinner, how much money would your dependents need to continue their current lifestyle?
If you have loved ones that count on your earnings to survive, you might need to think of including sufficient funds onto your life insurance policy to make sure that they don’t lose that income if you are not around.
For example, if you have an income of $75,000 a year, and want to be sure you have enough money to cover ten years of your income; you would need a minimum of $750,000 to give your family enough money after you are gone. You should also factor inflation into your final calculation. You also need to factor the cost of living into your final estimation. Typically, you can do that by basically adding an extra year of your wages to the overall number.
In addition to your earnings and any debt, you will probably want to cover other upcoming expenses that go above and beyond your income replacement. Do you have children? If so, you ought to think about the unpaid obligations you presently carry out as a parent or guardian, and whether alternative or some other childcare arrangements might need to be made if the worst were to occur. You may want the assurance that your kids will be able to remain at the same schools or be able to complete their college education.
Life insurance is one of the easiest ways you can protect the future of your family if something happens to you. Everyone wants to be certain their spouse and children are secure after they are gone, and life insurance may be the best ways to accomplish this. It is also important to consider life insurance not as an expense but as a requirement that can help to secure your family’s financial future.
If something takes place and you don’t have life insurance coverage, your family may have to turn savings or ask other people to help pay off your outstanding debt, medical bills, burial costs, and other obligations.