Review these factors when determining the right amount of coverage for your family
No matter who you are or how old you are, if you have people who depend on you and your income, you need life insurance. The real question is not whether it’s necessary, but how much is enough? The answer: it depends. There are many factors that you need to look at before determining how much coverage you need, and this overview provides some insight into how to come to the right number.
1. Attempt to maintain your family’s standard of living
A key factor in determining how much life insurance you need is looking at just how much your family will require to keep their standard of living. Because you are supporting your loved ones, you should account for the entire loss of your income—and add in the cost of any funeral or related expenses in the event of your death. It’s not a pleasant thought, but crunching these numbers is the only way to get an realistic figure that you can work with. Be sure to itemize all the bills that are covered by your current income, like mortgage payments, utilities, food, insurance, gas, and other routine expenses.
2. Who are your beneficiaries?
If you have children and a spouse, your life insurance needs are going to be different than someone who has a smaller family. It’s important to consider how old your children are now and how much money would be required to care for them until they grow up and can manage their own lives.
Remember, if something were to happen to you while they are young, your spouse will be left to manage all of their care and expenses on his or her own. And of course, as your get older or your life changes in any way, you can always modify your policy.
3. A magic number: income multiplied by seven
A standard in the insurance industry when it comes to determining life insurance coverage has always been to multiply your current income by seven to 10. So if you’re currently making $75,000 per year, aim for somewhere between $525,000 to $750,000 in coverage. Of course, the exact number depends on how many people will depend on the money and other factors, like how much property you own and how many other assets and expenses you have.
4. How long should the term be?
Most folks choose a term life policy when they are looking to ensure that their family is provided for after they are gone. Term life is is an easy to understand policy that is not meant for investment and provides coverage for a certain length of time. If you die within the specified term, your policy will pay out a specified amount, as long as you pay your premiums on time.
For this type of policy, you’ll need to decide on the length of the term. To do so, you’ll want to think about the ages of your children and how long it will be before they are independent. It’s advisable to get a longer term if your children are very young so you can be sure there will be enough money to get them through their childhood. Of course, shorter options are available and may be the right choice, depending on your circumstances.
Deciding to get life insurance is a crucial step to making sure that your loved ones will not be faced with financial strife if you pass away. And while it’s not something any of us like to ponder, being proactive is a smart decision that will give you invaluable peace of mind.
When you’re ready, give Avante Insurance a call at 305.648.7070 to discuss your options. We understand how confusing life insurance can be and will help you determine which policy is the right fit, including exactly how much coverage you’ll need to care for your family.