Life insurance – everyone needs it, but how much coverage do you need? Each individual has a unique situation and the choice of coverage level requires calculation of specific factors. These include the financial obligations that would remain if you were to pass away suddenly, including:
- Income compensation: Your loved ones can be left in a dangerous financial state without the income you bring to the family. Income replacement should be calculated for how many years it will need to be replaced to support your loved ones.
- The cost of your mortgage: A home loan is usually one of the biggest expenses for a family. Without life insurance, your loved ones may be forced to sell the family home.
- The cost of paying off any outstanding debts at your death: Credit card debt, student loans, back taxes, and other debts won̵7;t go away when you pass away, and your life insurance policy should cover paying off these obligations, or your family could be forced to pay them off.
- The cost of college for your child or children: One of the highest costs for parents is the cost of sending a child to college. Calculate this amount when purchasing life insurance.
Calculate your coverage: The process
To calculate your income, multiply your annual income by 10 as a starting point. Many may choose a longer period to replace the income you brought in to support your family. Once you’ve calculated lost income, add the balance on your home loan or mortgages on other properties. Now add the balance of your existing debts to the total, and finally, add the cost of sending a child through four years of college, along with the amount needed to pay for room and board during their education. You now have the basic sum for the insurance cover you need.
Buy life insurance
Many young families do not consider life insurance a necessary expense, and this has led to many tragic situations. The family can be left in a very serious financial situation if you pass away unexpectedly. They have counted on your income to pay for food, housing, clothing, education and other basic expenses, which are now disappearing. Along with the devastation of losing a loved one, a sudden death can lead to very serious financial problems. For young families, life insurance is a must. Life insurance policies, when purchased by young, healthy people, are very affordable.
Term life insurance or whole life insurance?
Life insurance gives you the opportunity to be covered at the lowest monthly cost, but does not build up any equity. Many younger people buy whole life initially and then convert it to whole life later when they earn more. Whole life insurance policies create an asset over time. This allows you to borrow from it in the future, and the cover lasts for life, but costs more than the term. If your whole life insurance policy matches your budget, it is always a better option. If not, buy life insurance that can be converted to whole life when you’re ready.
Do you need life insurance to protect your family? Get help.
We invite you to meet with our local insurance agent to help you find an insurance policy that fits your budget and provides a death benefit that protects your family in the event of your passing. The funds are paid out quickly and are not taxed – a very important benefit.