Determining how much life insurance you need means taking a long, hard look at your financial life. You should consider your savings, debts, and income potential to help you decide how much your loved ones will need upon your passing.Get today’s insurance rates.
We know thinking about needing life insurance isn’t something you want to think about, but it’s important to protect your loved ones. For example, if you have a large mortgage on your home, you probably want it taken care of so that those that you leave behind aren’t burdened. Maybe you have other types of debts, or your spouse doesn’t work. Whatever the case may be, each factor will play a role in how much life insurance you need.
What’s Your Savings Like?
Do you have substantial savings? We aren’t talking about an emergency fund should something on your house or car break. We are talking about ‘real savings,’ the type that will help your loved ones live without your income any longer. If you don’t have a significant savings account, it’s time to consider life insurance. The money your loved ones get from the insurance can make up for the lack of savings.
What are Your Debts?
Your debts play a large role in the amount of life insurance you need. As we discussed above, the mortgage is usually one of the largest and most worrisome debts. If you want your loved ones to be able to stay in the house upon your passing, making it possible for them to pay the mortgage off would help them stay there.
Don’t forget any other debts you may have. Think of things like car debt, credit card debt, and any other loans you’ve taken out over the years. These could all become the problem of your loved ones if you don’t plan properly.
Adding up the total amount of debts you have will be a part of the life insurance that you need.
What’s Your Income?
Think of your annual income now as well as your income potential moving forward. Then think about how many years your loved ones would need financial support upon your passing. For example, if you have young children, you probably want to support them through at least the age of 18, if not longer. Take the age of your youngest child and figure out how many years of income you will need to replace, should you die today.Shop and compare insurance quotes.
If it’s your goal to pay for your child’s education, you may want to add $100,000 per child to this number to account for the cost of college.
The Average Cost of Final expenses
Don’t forget the cost of your funeral, funeral services, and burial when you figure out how much life insurance you need. The last thing your loved ones want to worry about upon your passing is how they will pay for your final expenses. Make it easy for them by carrying enough life insurance to cover these expenses so that they can properly grieve.
Adding it All Up
Once you know the amount of your total debts, your salary, and final expenses, you can figure out how much insurance you need. You can simply add up the expenses, such as your mortgage, credit card debts, and final expenses. To that number you’ll want to add your salary for the number of years you want to cover your loved ones. For example, if you have a 5-year old now, multiply your annual income by at least 13 to make sure you provide enough income until your child is 18 years old.
If you have any savings or other life insurance policies, you can subtract the value of those assets from your total from above. This will leave you with the amount of life insurance you should consider when buying a new policy.
Remember, you can buy a whole life policy, which gives you cash value that you may use even while you are still alive. You can also buy a term life policy that protects your loved ones should you die before your mortgage is paid off or your kids go to college, as a couple of examples.
The best thing to do is shop around, talk with different agents, and see what options you have at your disposal. This will help you find the most affordable premiums and the best life insurance that will protect those that you love.Get the right insurance coverage.