Do I Need Life Insurance?
- How much debt you’re facing: All your debts—from car loans and mortgages to credit cards—must be paid off completely. If you have a $200,000 mortgage and a $4,000 car loan, you would need at least $204,000 in your life insurance policy to take care of all your debts and interest.
- Income replacement: One of the key factors in determining a life insurance face value is income replacement. If you’re the only provider for your dependents and earn $40,000 a year, you will need a policy payout that is large enough to replace your income plus some additional money to guard against inflation. To merely replace your income, you will need a $500,000 policy. This is not a set rule, but adding your annual income back into the policy ($500,000 + $40,000 = $540,000, in this example) is an ample guard against inflation. You have to add this $540,000 to the amount of your total debts.
- Future obligations: f you want to pay for your child’s college tuition, you’ll have to add this to the amount of coverage you want. This could cost about $100,000 but could cost much more—possibly $200,000 or more—depending on the college’s or university’s tuition along with housing costs.
When you total the costs, you likely will want a life insurance policy for $840,000. Let’s explore how this works in an example:
- $540,000 to replace yearly income + $200,000 for the mortgage expense + $100,000 for the college or university expense.
You may even wish to insure other people in your family. As a rule, you should insure only those whose death would amount to a financial loss to you. If you have a spouse or partner who’s a contributor to your family’s income, then it would be a sound idea to go through the same financial-calculation exercise to determine the face value of the life insurance policy.
Once you arrive at the required face value of your life insurance policy, you can start looking for the perfect policy for your dependents.
BeneFinder’s agents are adept at helping you save money and time in finding the ideal life insurance policy based on your needs.
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