Life
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How Much Life Insurance Is Enough?
- One reason for choosing a life insurance policy is to determine how much your dependents will need after you’re gone. To determine the face value (the amount your
- the policy pays if you die) of your life insurance, you should consider the following:
- How much debt you have: All of your debts must be paid off in full, including car loans, mortgages, credit cards, etc. If you have a $200,000 mortgage and a $4,000 car
- Loan, you need at least $204,000 in your policy to cover your debts (and possibly a little more to take care of the interest).
- Income Replacement: One of the most significant factors for life insurance is income replacement, which will be an essential determinant of the size of your policy. If you are the
- only provider for your dependents, and you bring in $40,000 a year, and you will need a policy payout that is large enough to replace your income plus a little extra to guard
- Against pagination. To replace your income, you will need a $500,000 policy. This is not a set rule, but adding your yearly income back into the policy (500,000 +
- 40,000 = 540,000 in this case) is a reasonably good guard against nation. Remember, you have to add this $540,000 to whatever your total debts add up to.
- Future Obligations: If you want to pay for your child’s college tuition, you will have to add this to the amount of coverage you want, which would be about another
- $100,000
- Adding everything together, you will probably want a policy for $840,000 ($540,000 to replace yearly income + $200,000 for the mortgage expense + $100,000 university
- Expense).
- Once you determine the required face value of your insurance company, you can start shopping around for the right policy (and a good deal).
- Other people in your life are essential to you, and you may wonder if you should insure them. As a rule, you should only insure people whose.
- Death would mean a financial loss to you. If you have a spouse or partner that also is a contributor to the family income, then it would make sense to go through the
- Same exercise to determine the face value of the policy.
