What is life insurance? How much life insurance do I need? How much life insurance should I buy?
These are but a few of the many questions individuals and couples ask when considering the long-term financial protection of their family. So what is life insurance?
Life insurance is a financial tool that can help you secure your family’s financial future, should you die prematurely. On your death, the insurance company will pay your family a tax-free amount to cover funeral expenses, debt, education costs and lost income.
Life insurance coverage varies which could lead you to ask a very important question: How much life insurance do I need? In order to answer this question, you must make careful calculations and estimates, possibly with the help of a life insurance agent, to find out how much life insurance is enough.
Video: How Much Life Insurance Do You Need?
How Much Life Insurance Should You Have?
So how much life insurance should you buy? The first thing anyone should do is to list down all their current expenses. How much debt are you currently paying? Make sure that, your mortgage is included in that calculation. After all, you wouldn’t want your family to lose their home after losing you.
Don’t just include debts. To find out how much life insurance you need, you also have to consider current and future expenses, such as your child’s university education. Also, factor in the loss of income that will be caused by your death. If you want your family to continue their current standard of living after you die, the life insurance payment should also include at least 10 years times your annual contribution to the family’s income.
If you’re a homemaker, you should also think about including the extra expenses your family could incur after your death. Your spouse might need to hire a nanny or a housekeeper, thus adding extra expense.
There is also the issue of taxes. After you die, all of your assets, including the tax-sheltered ones, have to be lumped together. Be sure that your life insurance policy is also able to cover the tax expenses after your death.
Finally, when trying to calculate how much life insurance you should have, also consider funeral expenses; a simple funeral can cost even a few thousand dollars.
After estimating everything you need, be sure to ask for more advice from a life insurance advisor or agent who can recheck your calculations and recommend life insurance policies from the top insurance companies. In this way, you will be able to find out how much life insurance to buy.
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What is life insurance? How much life insurance do I need? How much life insurance should I buy?