Last week we talked about how important life insurance is and how life insurance works. This week, we want to talk about how you can figure out the right amount of life insurance for you and your specific situation. How much life insurance do you need? How do you know that the type/amount of life insurance that you have is right for you and your specific situation?
Life insurance is not a “one size fits all” situation, not in the slightest. Life insurance, much like most other forms of insurance, is unique to each individual person and family and must be personalized in order to sufficiently meet your needs. All of your different personal, familial and financial circumstances must be taken into consideration when trying to calculate how much life insurance you need in order to leave your loved ones with enough protection. The goal is to get enough coverage to replace the income that you would have been providing to your family and other dependents prior, as well as enough to cover additional expenses such as funeral costs, college tuition, etc. The safest way to ensure that you have enough life insurance is by purchasing a policy that will payout 10-15 times your typical expected income.
Now, how can you calculate how much life insurance fits your family’s needs? Well you want to start by adding up all of your present resources such as income streams and any liquid assets you may have. Then, you want to calculate what expenses you have to you/your dependent’s name. Such expenses could include basic bills, car loans, mortgages, credit cards, student loans or any other type of debt that could be negatively impacting your family when you are no longer here to provide for them.
Of course, the best option is to call us or your life insurance agent to discuss your different options. Speaking to an insurance professional who is licensed and passionate about helping you is always the best way to ensure that your insurance is properly fitting your needs. Outside of your insurance agent, there are many different types of life insurance calculators available through a verity of different resources. One way to self-calculate how much life insurance you need is to work through the following equation:
(annual salary) x (number of years left until retirement) = desired life insurance amount
There are also many different online resources that can be used to calculate the right amount of life insurance for your particular needs. Perhaps consider utilizing the following: