Figuring out how much insurance you need may seem like an impossible task, but estimating a ballpark amount of coverage isn’t as hard as you might think. You can make a sound estimate if you take the time to consider your finances and what your loved ones will need in the future. In celebration of Life Insurance Awareness Month, here are a few tips to help you determine how much coverage may be right for you and your family.
If you have a family or others who depend on you, you probably will want insurance to protect them financially. When determining how much life insurance you may need, make sure to factor in the cost of caring for dependents, such as your children or your parents, as well as their cost of living after you’ve gone. Add up your monthly bills and fixed expenses, and make a list of what you provide for your family. Include necessities like food and medical costs, but also discretionary funding for vacations and other quality of life needs. Depending on who you are supporting and how many, you’ll need to adjust your death benefit amount.
If you have outstanding debt when you die, your family may have to become responsible for it when you pass on. This could be a mortgage that you signed with your spouse or perhaps a student loan that you signed with your child. You want to get enough coverage to help your beneficiaries pay off these loans without financial hardship.
The cost of a college education for your children is something to consider when deciding how much life insurance coverage you need. Tuition is one of the largest expenses your kids will have. If you want to see them get a higher education and have better opportunities, you should plan for the costs of college in the future, which will certainly increase by thousands of dollars each year that goes by.
The cost of your funeral will likely be around $10,000. Your loved ones will need to pay for a funeral home, burial costs, a casket, a headstone or cremation, and probably more. It’s a good idea to include these expenses into your coverage so your family doesn’t have to worry about paying for it while grieving you.
Your health and age big factors in determining how much insurance you should buy and for how long. Hopefully, you will have less debt and fewer dependents in your later years. However, life insurance rates increase with age because there’s a higher likelihood you’ll get sick or pass away. When deciding to get life insurance coverage, you need to take that into account. You will likely be able to receive a more affordable rate when you are younger and healthier. If you can afford it when you are young, you should consider locking it down.
A common recommendation from experts is to calculate ten times the amount of your annual salary. But if you can’t afford the premiums for a certain level of coverage, the value of it will be lost. Always consider how much you can afford before taking the plunge and factor in premium costs to your monthly budget. Remember, higher coverage usually means higher payments.
When considering life insurance, you should assess your finances and educate yourself about the options available. But you also don’t have to do it alone. For help, contact a financial professional1 who fits your needs.
1. The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.