Calculating Life Insurance Needs

How much insurance is enough insurance? It’s the ultimate question. Typically, you should be multiplying your annual income by 100. This means if you make $60,000 a year you should have a $600,000 or higher life insurance policy. Therefore, many employers offer $500,000 life insurance policies as part of their benefits package. It is what the average American is estimated to need to cover, well, their life.

Now in this example if your employer did only offer $500,000 worth of coverage you could also go through your bank or other third-party entities to cover that $100,000 or more in excess expenses. The beauty of it is you should never go without life insurance. Not only is it very easy to obtain, it is also extremely affordable. There are certain factors to answer the question that how much insurance is enough? Start exploring them right below.

Savings

With the above calculations aside, you also need to think about how much you have saved and plan to save in the future. If you have responsibly put away $200,000 and are also on your way to receiving a $100,000 pension, life insurance will not be as much of a concern or it will just be an added bonus. Save and plot wisely keeping all investment plans in mind.

Age

Younger Investors



We all know everyone won’t live forever and unfortunately some of us also were born with health issues and in turn will not lives as long of a life. Yes, something like this should be taken into account. If you do not plan on owning a home or having children, you will in turn need less life insurance and need to pay little to no monthly premium for sufficient coverage.

Older Investors

Living a long and luxurious life is great, but it also means you’ll have a lot more to cover later. Keep in mind your housing taxes, any debt you have tallied over the decades, family expenses, and the price of inflation. It all adds up.

Dependents

Many Dependents

The more beneficiaries, the more there is to consider. When your employer offers a $500,000 life insurance policy they also offer them the ability to select more than one beneficiary, which may be just what you need. You may divide your benefits up by three people to make sure all your loved ones are covered including your wife and two children. In turn everything is divided fairly with less confusion or reallocation of funds later. If your children are also looking to go to college you will also want to factor the rising cost of college tuition into the equation. This will add a few extra hundred thousand dollars of coverage to your end goal. You may also want to keep in mind a growing family like if you are expecting grandchildren any time soon.

Zero to Few Dependents

On the opposite end of the spectrum, the less beneficiaries the more that sole proprietor will receive, and this is why some people may opt for less coverage. This isn’t only about your expenses and what you leave behind, but it’s also about what type of lifestyle you want your loved ones to live after you have passed on.

Lifestyle Choices

Minimalists

Tiny homes have become the hot new trend for a reason. The less we consume, the less we must worry about. If you leave little to nothing behind you don’t have to worry about it. For example, people who own tiny homes may never have to worry about paying extreme housing taxes which will save them a fortune in the long run. As you get older, think about what material items are worth the investment; you’ll thank your future self.

Life of Luxury

What if you are the bread winner of the family? Many people overlook the payments and taxes that will be left behind when they are gone, especially if you purchased expensive items. If you are married, compare and combine the totals of your policies. Make sure it is enough to cover everyone regardless of whomever needs to rely on whom.

Burial Costs

Cremation

Cremation is the more cost effect route. It typically costs about $2,000 to $3,000 for this less than traditional burial cost. This option ranges at about $6,000 to $7,000 in price mostly covering urn and after care expenses.

Burial

Burial tends to be the more popular route. This option will range from $8,000 to $10,000. Family members will often spend more on the headstone and casket with this option as well. It is important to have this discussion with everyone when deciding on your will and life insurance policy.

Take Away

So, what do we take away from this? The life you live now will lead to the life insurance policy you need later. You will need about 10 times your annual income as life insurance. In addition, keep in mind how many loved ones you may leave behind, burial costs, and beware of your overzealous, luxurious purchases. With these factors in mind you can determine just how much life insurance is enough insurance. You can retire happily knowing both your family and life are covered.

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