To decide how much life insurance to buy, you need to first determine what your goals are for purchasing this coverage. Ask yourself the following:
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Do I want to spare my loved ones funeral costs and outstanding debts?
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Am I concerned that my spouse will be unable to continue to pay off the mortgage if I die suddenly?
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Do I have dependents who count on my income?
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Do I have enough savings to ensure my child(ren) can attend college, or retirement savings for my spouse, if I die suddenly?
While all situations are different, here are two scenarios to help you think through the questions you should pose to your insurance professional:
Dependents
If you have children, a spouse who does not work outside the home, or aging parents who you financially support, you have dependents. Alternatively, you may simply have a spouse, who would be unable to pay the mortgage without your financial contribution. In either case, your loved ones will no longer have your income to help them pay the bills and maintain their lifestyle in the event of your premature death. You will have to purchase enough insurance to provide for their future, while considering how much of your budget should be allocated to life insurance.
Some insurance experts suggest that you purchase approximately seven times your current income. While this may be a good way to begin estimating your family’s needs, you should seriously consider how much your dependents will need to pay for some or all the following:
- Cost of owning a home (mortgage, maintenance, insurance, taxes and utilities)
- College savings
- Food, clothing
- Child care
- Nursing home or elder care
- Retirement savings
- Funeral expenses and estate taxes
Your family may also need extra money to make some changes after you die. They may want to relocate, or your spouse may need to go back to school to be in a better position to help support the family.
No dependents
If you are young and plan to have a family in the future, you may want to consider purchasing life insurance now so that you can potentially lock in a more favorable rate.
Just because you don’t have dependents, does not mean you don’t have responsibilities. For instance, due to final expenses or other financial obligations, you may be concerned with not being an economic burden to others if you die unexpectedly. You may also want to leave some money behind to close family, friends or a special charity as a remembrance. In this case, you should purchase enough coverage to pay funeral and burial expenses, outstanding debts and tax liabilities, so that the bulk of your estate goes to your family, friends or charities.
Your insurance needs will vary greatly according to your financial assets and liabilities, income potential and level of expenses. A licensed professional insurance agent can assist you in determining the most appropriate type and amount of coverage.
To decide how much life insurance to buy, you need to first determine what your goals are for purchasing this coverage. Ask yourself the following:
-
Do I want to spare my loved ones funeral costs and outstanding debts?
-
Am I concerned that my spouse will be unable to continue to pay off the mortgage if I die suddenly?
-
Do I have dependents who count on my income?
-
Do I have enough savings to ensure my child(ren) can attend college, or retirement savings for my spouse, if I die suddenly?
While all situations are different, here are two scenarios to help you think through the questions you should pose to your insurance professional:
Dependents
If you have children, a spouse who does not work outside the home, or aging parents who you financially support, you have dependents. Alternatively, you may simply have a spouse, who would be unable to pay the mortgage