When it come
s to buying life insurance, most experts recommend purchasing at least 10 times your current salary in benefits. For some, that amount may seem way too high; while others may look at that figure and worry that it will not be enough to sustain their family in the tragic event of their death. So how much term life insurance do you need? That depends on a lot of different variables.
How Much You Currently Owe?
When trying to determine how much term life insurance you really need, first take a good hard look at the debt you have wracked up. The more debt you have; the more insurance you are going to need to cover those expenses. One of the goals of life insurance is to give your family the money they need to pay off your debt and still have some left over to live on for awhile.
Your Current Standard of Living
What standard of living do you want to offer your family after your death? Most people would respond to this question by simply stating that they would like to ensure that their family can continue to live in the same general fashion that they are right now. That sounds good, but look at what that means, including how much monthly income they will need to keep paying for those dance lessons; vacations; new cars; and other lifestyle items. Remember, when you calculate your insurance amounts, you will want to include enough money for your family to continue paying for the things they need and enjoy now even after you income stream has stopped.
The Ages of Your Children
The younger your children, the more insurance you will need to help get them raised. Also, if your children are younger and you want to ensure that their college expenses are covered in the future. Be sure to include that amount in your insurance coverage amount. Another thing to consider is whether or not babysitters and daycare expenses must be covered after your death. This too can be pricey and will need to be factored into your final insurance coverage amount.
Older children will require a smaller financial investment for your spouse after your death; especially those whoa re already grown and out of the house.
How Long You Want Your Insurance to Last?
Some people simply want enough life insurance to pay off their current debt and leave their family with a basic nest egg for emergencies. Others, want their family members to be able to live off of the interest of the principle amount of the insurance; and still others just want the money to last for a set period of time (like until their youngest child graduates from college). Decide how long you want the money to last your family when figuring out how much term life insurance you need.
How Much Income Your Family Can Count On?
Another big factor to consider when figuring out how much insurance to buy is whether or not your family has other incomes sources to count on after you are gone. Maybe your spouse works and has a salary and benefits; plus you may be able to figure on your spouse and children receiving social security or other death benefits on a monthly basis. In that case, you may need less insurance. Really think about how much money your family can count on every month to live off of when deciding how much insurance to purchase.
How Much You an Afford in Insurance Premiums?
After looking at all of the numbers, you may decide that you really do need 10 times your current salary, but can only afford five times that amount. Start there. It is never a good idea to put yourself in debt to cover your life insurance needs. A better strategy may be to pay off some of your debt to help free up more money for both higher insurance premiums and to help lower your family’s need for more insurance monies I the long run. Remember, the less debt you have, the less your family will have to pay off (or pay on) after you die.
Deciding how much term life insurance you need, can be a bit tricky. It is not always easy to know exatcly what is necessary. Following set formulas can help you find a starting point, but those same formulas may not always work with your fmaily’s needs. Always remember that the final number you come up with is a solely individual choice that only you and your family can make. Just be sure to take into account all of the factors listed here to help you determine the real amount of term life insurance that you need to cover your family’s expenses in the event of your untimely death.