How Much Life Insurance Do You Need?
Many try to avoid the expense of life insurance. The truth is, if you have dependents and you are the primary provider for them or have a significant amount of debt that outweighs your assets, life insurance is a necessity.
This question deserves consideration of your overall financial status as well as needs. You want to avoid being underinsured, but also not to buy extra- buying extra insurance can be a later option.
It’s crucial to take a deep look at your larger financial plan. You might need an advisor to properly do so.
The general rule is to calculate your long-term financial debts and subtract them from your assets. However, this is not as simple as it seems. Here are some things to keep in mind:
Multiply your income by 10
This is an old rule and may be outdated. Still, it can be a good first step.
If you have a child, buy 10 times your income plus $100,000 per child to cover his/her college expenses.
Take a detailed look at your financial status.
- Debt: How much debt would you leave to other people? This could include credit card debt and student loans that aren’t forgiven at death.
- Income: Multiply your income by the number of years you want to provide income replacement for your family. Some sites advise using the number of years until your youngest child turns 18, but we all know that kids often need financial help longer than that.
- Mortgage: Add your mortgage balance to your running total.
- Education: Add an amount that covers tuition, room, and board for each of your children who will go to college. The College Board regularly publishes trends in college pricing.
- Take into consideration why are you buying life insurance? Ex. Burial expenses, transfer wealth, retirement income, tax advantage investment, pay for college, etc.
- Buy a little more rather than less insurance coverage
- Consider buying multiple instead of one large policy
- If you have a business, you need a calculation that gives you a good number for key man life insurance.
- Take into account future expenses and incomes such as college expense or growth of your assets
Our staff will be happy to help you out and assist if you have any concerns. Feel free to submit your quote today.
You may want to see an example of calculating life insurance coverage here.
Thanks for reading!
Farmers Mutual Insurance
749 Wilson Road, Newberry, SC 29108