How Much Life Insurance do You Need?
It's one of the common questions asked by people who are in the market for life insurance: How much insurance do I need in order to provide for my family, protect my business, or benefit my charity after I'm gone? The answer will depend on your financial responsibilities, as well as a consideration of the reasons you're purchasing life insurance.
Why Do You Need Life Insurance?
People buy life insurance for a variety of reasons, and the rationale is important when deciding just how much insurance coverage you need.
For most people, life insurance is a way to look after a spouse, children, or other dependents after they're gone. If this is your objective in purchasing coverage, you'll need to do the math to figure out exactly how much you should buy. Calculate your family's monthly household expenses - including mortgage or rent - and add in a margin for unexpected expenses like medical bills and house repairs. Remember to include the cost of a funeral and burial so family members aren't faced with the burden of that expense during a very difficult time. You should also factor in children's education and any other predictable costs likely to come up in the future. Ideally, the death benefit from your insurance should be enough for your survivors to invest and draw upon as needed to cover expenses for as long as necessary.
Another reason many people invest in life insurance is to protect their assets from estate taxes. If someone other than your spouse will inherit your estate or your business interests, keep in mind that the associated taxes can be significant, often enough to force people to sell companies and property at a loss just to generate the money to pay them. You can protect these assets by calculating the taxes that will be owed (as closely as possible, given fluctuating property values and changing tax laws) and making sure your life insurance more than covers the possible estate taxes.
If you're interested in life insurance as a way to leave money as a gift to your heirs, or to support a cause, the equation is much simpler - you can leave as much or as little as you'd like.
How Much Are You Willing to Spend on Whole or Term Life Insurance?
In a perfect world, the cost of life insurance wouldn't be a factor, and choosing coverage would simply be a matter of the amount of money you'd like to leave to your dependents or heirs. But when determining the amount of life insurance to buy, it's important to consider the cost of different options.
Although it's less expensive to purchase, term life insurance doesn't provide coverage indefinitely - if the policy holder dies after the term of the insurance has run out, their heirs receive nothing. But it does offer the benefit of allowing people to purchase more coverage than they would be able to afford with whole life insurance.
The best way to learn more about whole life insurance is to get tips and advice from local insurance brokers. These professionals will help you do the math and decide what amount of life insurance coverage best suits your needs.