What Is The Right Amount Of Life Insurance?
This is one of those questions in life that obviously holds a lot of weight. When contemplating your family’s or dependent’s futures, its stressful to think about them without you in their life, and yet that is exactly what buying life insurance forces someone to do.
This brings the question, how do I know I have the right amount of life insurance? Or how much life insurance do I need? Its almost scary asking this question because you know in your heart, you want your family to have the maximum amount of life insurance possible if something were to happen to you…but you also don’t want to spend and unbalanced amount of money insuring for something that odds are, will never happen. So how do you find the balance necessary to give you piece of mind without breaking the bank?
Well, it’s simple, you’re going to have to do the math. If you aren’t handy with math, then its a good idea to see a life insurance advisor to help you navigate this question. If you don’t believe in getting exact numbers, you can also use a rule of thumb to get you to the right amount of life insurance.
For example, one rule of thumb states that a person should own 10 times their salary in life insurance. One problem with this….this doesn’t account for any of the intricacies of an individual’s situation, such as how many children or dependents does one have? Do you want the life insurance to send them to college and pay for their education?
When answering more detailed questions like this, its wise to use a life insurance needs calculator, or use a “how much life insurance do I need” spreadsheet to make the calculations. Having a paper spreadsheet can be ideal so that you can keep a record of the numbers you input, so that you can refer to them in the future if you think you now have too much or too little life insurance.
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When making the calculations, a few things you’ll want to consider is:
- How much debt do you owe?
- How many kids and how much of their college education do you want to pay for in your absence?
- How much income will your family need to live off of?
- How long will your family need the income to live off of?
- How much savings and investments do you currently have put away?
- How will your spouse retire after the kids or dependents have left the house? Will they be able to?
There are a lot of resources on the internet to help you think about these questions. But at the end of the day, it may be worth it to sit down with a life insurance professional in order to have them help you with the calculations. Be sure to have them help you understand the calculations, otherwise, you will be tempted to think they are just trying to sell you more life insurance. After all, they make a commission for the amount they sell. But don’t be blinded by that…they also likely love what they do and care deeply for their clients and would hate to see one of their clients short-changed on the amount of death benefit they would receive if the death ever did occur.
