When determining your life insurance needs, it takes more consideration that deciding how much you’d like to pay or what amount sounds good. You should determine what the insurance will need to cover and for how long. Here are the four best ways to determine the life insurance needs for you and your family.
First, you need to determine what the insurance will be used for. This helps you decide what type of insurance you’ll need. You could opt for whole life or universal life insurance if you have a business you want to protect for your family’s sake, or estate taxes will be involved. Term insurance is considered your basic insurance. This helps protect your family against your income loss.
Consider Your Current Debts
You want to have enough life insurance to cover any of your current debts and your burial expenses. Having a $45,000 life insurance policy that pays $8,000 for your burial expenses, and leaves your family with $37,000 to pay off a mortgage, your student loan, the auto loan, and other personal loans is not realistic. The purpose of your life insurance policy is to leave them comfortable and secure. Purchase enough coverage so your debts are not a burden to your loved ones. On the flip side you may also be able to reduce your burial or life insurance needs.
What Would Your Family Use the Future Income For?
Now, after your family has covered your debts and expenses, what could they need the additional income for? What is your household’s current monthly budget? Check out your bank statements if necessary and estimate your spending.
Do you have children going to college? What other big ticket items should you consider such as purchasing their first car? If you have little ones and now the stay-at-home parent needs to go to work, consider the child care expenses such as a daycare or nanny. Will your spouse need to go back to school to get certified for a job?
How Long Will Your Family Need This Money?
Finally, consider how long they will need this income to take care of the household. Will it be until your children all graduate from college? Consider the fact that college costs rise about 5% each year. Will it need to last just a few years until your spouse gets on their feet? Maybe your spouse needs enough until they retire? You may also plan for them not to have to work at all