How Much Life Insurance do you Need?
The moment someone started depending on you for financial support, whether it is a spouse, children, or even your parents, you had the need for life insurance. Life insurance is simply a low-cost way to ensure that your loved ones, your beneficiaries, are left with ample financial resources in the unlikely case of your death.
It is easy for an individual looking to purchase life insurance to decide upon a seemingly arbitrary figure. “$100,000 ought to be enough,” some say. But even though a sizable six-figure sum like that can appear to be a sufficient amount for your loved ones to continue without your support, it may not actually be enough.
How do you calculate the proper life insurance benefit?
To help you more accurately determine and calculate your family’s future financial need it is always wise to consult with a life insurance agent. A good life insurance agent is trained to analyze each individual family’s current and future financial situation and help you calculate an accurate amount of life insurance benefit you should purchase.
To give you an idea how life insurance needs are analyzed let’s say you are the main means of financial support for a typical 4-member family, 2 adults and 2 children, who owns your home. An agent would collect various financial information such as IRS tax returns for the past few years, recent employment pay stubs, and information on assets like home equity value, checking accounts, and any investments you may have.
A thorough financial analysis would chart your income, plus estimated raises, along with your investment returns for the next decade or two, depending on whether you have children and the ages. The younger your children the longer you should extend the timeline for your future estimated income replacement.
Your future expenses would then be calculated including the estimated cost to raise children, plus living expenses, like utilities, maintenance costs, groceries, etc., that your spouse would have to pay. All your current debts would also be analyzed such as your credit card balances, automobile loans, and the amount of your outstanding home mortgage.
With these figures the agent could calculate what it would cost to pay all your debts and still have enough money for living expenses for the next decade or two upon your imagined death now. Your agent will figure the lost income needed to help raise your children, and send them to college. You may be surprised to learn that a thorough financial analysis may actually show that your beneficiaries may need more than the one year of gross income that is typically used to estimate life insurance needs.
You can see there are many factors that calculate into how much of a death benefit you really need for your family and how much life insurance you should purchase. Be sure to think over you current and future financial situation carefully. Consult with an agent if you think that would be best. When you have the right amount of life insurance you can have peace of mind that your loved ones will be taken care of.
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