September 28, 2021
How Much Life Insurance Do I Need?
Understanding how much life insurance you need or what type is right for your situation is not always easy. Everyone’s financial situation is different. Some insurance agents might recommend that you purchase five to ten times your annual income in life insurance coverage, but that doesn’t take into account the unique aspects of your financial situation. At BetterLife, our agents look at the entire picture to get the most accurate understanding of your life insurance needs.
So How Much Life Insurance Do I Need?
Again, there is no cut and dried answer to this question and it depends on your situation. To help determine how much life insurance you need, a knowledgeable BetterLife agent will discuss your current finances with you to better understand the type and amount of insurance that will provide you with the right protection. When calculating your needs, they will ask questions about the following items:
Having a source of money to depend on during the first five years after a loss can help your loved ones make clear financial decisions rather than rushed ones, like potentially selling the family home at a loss to cover debts or other costs. Historically, it takes between three and five years to get your life back together after losing someone. For some people, it is comforting to know that extra money will be available during this time to help you make big financial decisions.
If you own your home, do you want life insurance to cover the remaining total on the mortgage? Removing this monthly burden from your beneficiary’s budget might allow them to live more comfortably without worrying about coming up with the mortgage payment on their own.
What do you have that you still owe money on? Is it the cars in the garage? Maybe credit card debt? What about your recreational vehicles, like a boat or motorcycle? Some clients like to satisfy any financial obligations they have in the event of a loss so that their beneficiaries don’t have to sell them in order to get out of the payments.
Child care costs are expensive. Paying for child care is even harder when it’s just one parent making the payments. Ensuring money will be around to cover these can help tremendously when a family is faced with the loss of a loved one. In addition to child care costs, there are other things you may want to do for your children, like pay for college or their first car. Planning for these can give peace of mind that everything you wanted to provide for your children will still be there, even when tragedy hits.
Funeral and Burial Costs
These costs should be central to any form of life insurance planning. Covering the cost of burial eases the emotional and financial burden on survivors who are already dealing with tragedy. This is a cost that someone must bare at some time, so having a plan in place for it now reduces the stress of the event later.
While this might not seem a typical thing to include in your life insurance planning, it is a way to ensure that the causes and organizations you believe in are strengthened in the event of a loss.
Take a look at all your current assets like your savings, money market account, CDs at the bank, maybe even your 401k. If you have savings that can be used to cover the costs of some of the items mentioned above, then it might make sense to use the money to pay for them in the event of a tragedy. This might allow you to choose a smaller policy if your current assets can be used. One thing to consider when including this amount in your calculations is that some assets might not always be there later when you need them–for example, if you decide to purchase something or invest the money and have to pay taxes to use it.
Life Insurance Through Work
This is a great benefit to have. Typically your employer can offer an amount that is very affordable and provides a great survivor benefit. The question is, what do you want to do with this policy? Some clients have eliminated the employer life insurance benefit or rolled back the amount of coverage after getting a life insurance policy. Some clients have decided to just use it as an extra benefit for their family. One thing to remember is that a work life insurance policy likely will not follow you to a new job, so if a new opportunity doesn’t have as good of a benefit, then it might throw off your life insurance need calculations.
Calculate How Much Life Insurance I Need
At BetterLife, we use a specific process to help understand and assess your individual situation. We gather detailed information from you and then use a calculation to determine your needs. We’ve developed a worksheet to provide you with a starting point for understanding the type and amount of protection you may need. This tool also helps you prepare for a conversation or appointment with an agent, who will use this information to build your customized protection plan. Fill out our handy life insurance needs tool here!