How Much Life Do You Need

Not many people enjoy thinking about their death, and fewer still even remotely consider the possibility of an early death. Still, one should take the time to think about it, especially when it comes to the financial safety of your family.

Do you have enough money to pay all your debts and cover your funeral expenses? What about taking care of your family after you are gone? Life insurance is designed to create a safety net for your family in the tragic event of your untimely passing. But how much do you really need?

Should everyone have life insurance?
Before we can even consider how much life insurance you should purchase, you need to decide if you really need it at all. Buying life insurance isn’t right for everyone. If you are single and don’t have any dependents, you might not need it. This is assuming you have enough money saved up to cover the cost of your funeral expenses and debts if you do pass away. If you do not, you may want to consider life insurance even if no one is counting on the money you bring in.

You don’t want your family members having to pick up the tab for your death. So take a hard look at your finances and the money you have saved. If you have enough saved through your various accounts to cover all your expenses when you die, there is simply no reason to waste the money on life insurance.

Life insurance and your age
One of the greatest myths about life insurance is that it is harder to get as you get older. Insurance agents are notorious for hinting that this is true, although they will never come out and say it directly. That is because it isn’t true. If you purchase life insurance when you are young, your premiums will be very low compared to waiting until you are older. That is because the insurance company is betting on you living. If you do happen to die early, then you were a bad investment. However most young people live for a long time, making it a pretty safe bet for the insurance companies.

If you didn’t pick up life insurance when you were young, don’t believe that you can’t get life insurance. Insurance companies will charge you more for your insurance, as you will present a greater risk to the company. However, you should still get approved. The question becomes, can you afford to pay the higher premiums? Once you reach retirement age and are on a fixed income, it will most likely become more difficult to afford the payments, but the ability to qualify for life insurance won’t go down just because of a few extra years under your belt.

Determining your insurance needs
The largest part of choosing a life insurance policy is determining exactly how much you will need to take care of the expenses of your death as well as be sure your family members are taken care of if something does happen to you.

How much debt do you currently have?
All of your debts must be taken into account when you pass away. This includes your mortgage, car payments, and credit card debt. In any policy you take out, you want to be sure you have enough money to cover the costs plus any extra interest that gets added to the loan. For example, if you owe $100,000 on your home plus you have $20,000 left to pay on your car and $10,000 in credit card debt, you will need a minimum of $130,000 to pay off these debts, although you may want to consider adding a little more to be sure any interest is covered.

Does your insurance need to cover income replacement?
If you have a family that counts on your income to survive, you may want to consider adding in enough money onto your life insurance policy to ensure that they don’t lose that income if something unfortunate happens to you.

For example, if you have an income of $50,000 a year, and want to be sure you have enough money to cover 20 years of your income, you would need a minimum of $840,000 to give your family enough money after you are gone. You should also factor inflation into your final calculation. Usually, you can do that by simply adding an extra year of your salary to the final figure.

Will the policy need to cover other future expenses?
On top of your income and any debt, you will also want to cover other future expenses that go above and beyond your salary replacement. Do you have children? If so, you may want to build in a set amount of money for them to go to college someday without needing to take out thousands of dollars of loans in order to get their education.

It’s difficult to predict exactly how much the college tuition will be when your children are ready to head off to school, but you can look at tuition in your area and make an educated guess. Whatever figure you come up with, add it to the total of your policy.

Does your insurance also need to cover others?
There are most likely other people in your life who may need to be insured. As a rule, you only insure people who would constitute a financial loss if they died. The death of a child, while emotionally devastating, doesn’t cause you to lose income. But the death of an income-earning spouse is both emotionally and financially devastating. This financial loss is the perfect reason to purchase life insurance for them as well.

Life insurance is one of the best ways you can secure the future of your family in the event that something happens to you. Everyone wants to be sure their loved ones are safe and secure after they are gone, and life insurance is one of the easiest ways to do that. But, you need to carefully consider what you need to cover in the event of your death so you don’t under- or over-buy on your life insurance. It’s the best way you can be sure your loved ones are taken care of after you are gone, while ensuring that you don’t have to pay too much for that safety net while you are alive.