Some Things You Should Know About Calculating Life Insurance
If you are buying a new life insurance policy you are probably wondering how much you should be purchasing. The amount will be different for each situation, so it is hard to give an exact number without considering a few factors. Here are some things you should consider when calculating your life insurance.
1. Do You Have Dependents?
One of the first things you need to think about is taking care of your family's financial needs. If you have children and a spouse, you will need to purchase more in insurance. First, if you are the primary breadwinner, you should calculate how much your family needs to live off of each year, and then multiply that number by how many years you think it will take your spouse to get back into the work force. If your children are young and need more care, it may be longer than someone with teenagers.
If you are a stay at home parent, you still need to consider the cost. Your spouse will now have to pay for child care, house care, meal prep and so forth. So no matter what, you should have more in life insurance if you have dependents.
2. How Much Debt Do You Have?
Another important question is to consider your debt. Most people have some sort of debt. Usually it is your house, cars, and then if you have any student loans or consumer debt. When you pass away, your debt will not always die with you. Some of those debts will be forgiven, like student debt, but other times it will just be passed on to your family. Your life insurance policy should be calculated so that if you pass away your policy will cover all of your debts.
3. Do You Have Savings For End Of Life Expenses?
Most young adults do not have a savings account dedicated to end of life expenses. It is highly unlikely that you have a couple thousand dollars put in an account labeled "funeral." But the funeral is a massive expenses after a death. Not to mention you could have a lot of medical debt in the final days of your life, especially if is it an illness or some tragic accident that requires medical help in the final days. A life insurance policy will help to cover all of these end of life expenses so that the financial burden does not rest on the family.
As you can see it is very important that you correctly calculate how much life insurance you need.