There are a few things in life such as taxes and house payments that are certainties. Unfortunately, another inevitable element of life is death. While we don’t want to dwell on end-of-life scenarios, it does make financial sense to make a plan for our families and assets. Having the right financial plans in place will ensure that your loved ones are taken care of and that your final expenses and lingering debts are covered. A responsible financial plan includes having a solid life insurance policy.
When families are planning life insurance options, the most frequent question that arises is about the coverage amount. How much life insurance you need is dependent on several things. The coverage amount that you need depends on variables such as your age, your debts, and your financial obligations to your family. Deciding on the right policy and the amount of life insurance you’ll need will require several considerations. Before you buy a policy, you’ll want to get more than one life insurance quote and consider the death benefits offered. Let’s take a look at some things to consider when determining how much life insurance you should carry.
The Big Picture
Purchasing life insurance should be part of your larger financial plan. When considering your policy and the coverage amount that you need, you’ll want to look at the big financial picture. Your insurance policy will help fill in the gaps if there is a need to pay off debt or provide income replacement. Additionally, the life insurance coverage will come with an annual premium.
The average life insurance premium is around $143. Your premium will be dependent in part on the coverage amount you select. You’ll want to weigh the cost against your current financial situation and your long-term outlook. Your larger financial picture will play a big role in the amount of coverage that you should carry.
Life Insurance Needs
Determining how much coverage you need from an insurer doesn’t require a complicated formula or an accounting degree. To figure out how much insurance you need to provide an adequate death benefit, you need to look at your financial obligations. You should compare your obligations with the resources available to cover those obligations should something happen to you.
If you find that there is a significant gap between these two elements, that will be the minimum amount of insurance that you need. Some of the factors that you should look at are the amount of income replacement that will be required, the balance of any mortgages or loans, larger debts, and college tuition responsibilities. With all of that in mind, you’ll want to determine what an adequate death benefit will be for all types of policies.
Life Situation
Another factor that you should consider when looking at insurance products is your life situation. If you are younger and have dependents, you should strongly consider contacting life insurance companies to ensure that your family is taken care of. In this situation, you’ll want to carry a significant amount of coverage to help sustain your family.
If you’re older and your children are grown, it might be that your spouse would be comfortable with a smaller death benefit. As you reach retirement age, income such as social security, retirement account payments might be available to supplement a life insurance payment. You should consider types of life insurance and coverage amounts based on your age and family situation.
Even if you’re in excellent health and looking at a lengthy life expectancy, you should consider investing in life insurance. A life insurance payout might make sure that your family is taken care of should something happen to you. Depending on the complexities of your finances, you might need to seek legal advice and financial planning help. No matter what your situation, however, you’ll want to consider your life and financial situations to determine coverage options and amounts.
