Have you ever heard the saying that when it comes to life insurance, you should buy enough coverage to equal ten times your current salary?
Using this logic means that if you earn $ 50,000 annually, you would need to purchase coverage for $ 500,000. And if you make $ 150,000 every year, you'll need $ 1,500,000 in coverage.
Although math is easy enough to figure out, is it really true?
. As with most general advice, a strategy that suits everyone does not take into account your specific living conditions.
»Calculate: Life Insurance Needs Calculator
For example, a single 35-year-old earning an annual salary at $ 75,000 and do not want children, probably do not need $ 750,000 in life insurance. not having a salary may need extra coverage because they save the family thousands of dollars in childcare alone each month.
So, is there an easy way to determine how much coverage you need?
Using today's article you will be able to Refine your specific coverage needs before getting a quote on life insurance. This will help you find coverage that makes sense for your lifestyle and budget.
Your first step is to find out how much coverage you really need ̵1; exactly where I'll start today.
How Do I really need a lot of life insurance?
1. How much coverage do I need?
It's no surprise that you and your family are currently dependent on a steady stream of money to live on. Your paychecks provide a place to sleep and pay for food, clothing, schooling, medical check-ups, and many other basic necessities.
But to determine how much coverage you need, you can not just rely on your salary and your current salary amount. Yes, it's a good starting point to limit how much coverage you need, but what's more important to think about is what your salary really pays for.
Take a look at this example below:
At first glance may seem like Jane would need more life insurance than Sally because she has a higher salary and a bigger mortgage.
But Sally's children are quite a few years younger than Jane's so they will be dependent on Sally longer than Jane's children. Sally also has more children than Jane. If she passes away unexpectedly, it would probably take her husband longer (by several years) to become financially stable without Sally's income to fall back on.
When we connect the math to our life insurance needs calculator, we discover that Jane should apply for 770 000 USD in coverage. Sally actually needs to apply for $ 850,000. (Note: These coverage amounts do not include the cost of providing college tuition.) Take a look for yourself.
Here is Jane's estimated coverage needs:
Jane could also get a 30-year insurance if she wanted, but she really only needs a 15- or 20-year insurance.
This is how her math works:
Basically, you should buy enough life insurance to ensure that your family does not have a difficult time financially if you died during their most vulnerable years.
And you should always buy a life insurance as soon as you need it because life insurance is:
- Cheaper the younger you are.
- Cheaper the fewer health problems you have.
Let's use our original example to give you an idea of this. in action.
Jane can buy a $ 750,000 ht 20-year-old insurance rig now for only $ 33 a month. But what happens if she decides to postpone the application and then suddenly the diagnosis gets a medical condition? Instead of being classified as a low risk by the insurance company, she is now moderate to high risk depending on the diagnosis. Life insurance premiums are based on the applicant's total risk.