It’s easy to think that just because you have life insurance, that you have enough life insurance. However that couldn’t be further from the truth, life insurance is a very dynamic thing, just like our lives it should change as our life events change.
Today I’m not going to talk about what life insurance is, Here you can read a complete post all about term life insurance. Instead, I’m going to cover how to figure out how much life insurance you will need.
Before you start looking for life insurance quotes, you should determine how much debt you have and how much debt your future self may have. Are you guys planning for kids? Are you going to be purchasing a new home? Will your kids be going to college soon? Will you be getting married? All of these factors will change the determination of how much life insurance your family needs if you pass away.
To figure out how much coverage you should purchase, you need to do a complete audit of your everyday life which will help you figure out how much coverage you need.
I always recommend that my clients purchase at least 20 times their annual income in life insurance. The reason for this is because if your family is living on a $50,000 annual income and you pass away, that’s $50,000 a year gone immediately.
The insurance industry usually recommends that you only purchased 10 times your annual income. At $50,000 a year that will put you at around $500,000 in life insurance, that sounds like a great amount of coverage. However, the issue is that it only gives your family 10 years of income. It doesn’t account for paying off a home, paying off any additional debt, final expenses, or affording your children the ability to go to college.
At 20 times your annual income you would be leaving your family $1,000,000 in coverage. That would be more than enough to cover your home, allow your family to put some money away for savings, and also assist with paying for your children’s College. It would give your spouse the time to prepare for a new type of financial situation; like will they have to start working or how to deal with one income.
Your current age is going to play a significant factor in the amount of coverage you have as well. You want to make sure that you have a substantial amount of coverage when you’re younger because you’re going to have more debt when you’re younger. It’s always best to try to go for a 30-year term option if you’re under 50 years old. if you’re over 50, go for a 20-year term because it is going to be the most extended term available for your age.
You also want to be mindful to look for the most affordable rates when purchasing life insurance. You want to get the maximum amount of coverage whenever you’re looking to purchase coverage.
Make sure that you look at multiple quotes and make sure that you’re dealing with A rated insurance carriers.
Remember, life insurance is not for you it is for those that you leave behind.
So when you’re determining the amount of coverage you need, make sure it’s enough to cover your family not just for the immediate but also for the long-term.