Are you prepared for the unexpected? With life insurance, you can rest assured that your family will be well taken care of, should you pass away. It’s a sobering thought, but it’s also comforting to know that your loved ones will be financially protected if tragedy strikes. But how much life insurance is necessary? Here’s how to assess your coverage needs and determine what kind of coverage you really need.
Life Insurance: Meaning
Life insurance provides mental peace, knowing that your loved ones will be taken care of if you die. For example, if you died today, how would your family pay the bills and care for each other? Would the house get sold? Would they lose their car or need to find a new place to live? Most people don’t want to think about these things because it’s unpleasant to think about your own death. Life insurance helps protect you from these possible scenarios.
The Minimum Amount You Need
To decide how much life insurance to buy, you have to estimate how much your family will need if you die. The minimum amount of coverage you’d like to have is a multiple of your annual salary. Financial experts often recommend having 10 to 15 times your annual income in coverage, although your personal value may vary.
Factors to Consider
Debt
If you have outstanding debts, then make sure your life insurance policy is set to the size of these debts so that the money can be used to pay them off. It’s possible you may need more than what’s required to cover the debts. This is because any extra interest or charges will still remain to be paid for, so make sure you take out an extra amount of money for this purpose.
Income Replacement
Replacing a breadwinner’s income can be a major concern for those who depend on that person for support. For example, if you bring in $40,000 a year and have dependents who rely on that money, you should have enough life insurance to replace your income, plus a little extra as a buffer against inflation.
Insuring Loved Ones
When choosing who to insure, you should consider the financial ramifications of a person’s death. For example, if your partner or spouse were to die, you would lose more than just your partner—you’d have to pay for his or her share of shared expenses as well.
