No one really gets too excited thinking about buying life insurance, since this ultimately brings up thoughts of the inevitability of death or the potential of dying as the result of an accident, but in the long run, you go through the process of obtaining life insurance for your loved-ones. There are usually only two scenarios in which you don’t need life insurance:
- You have no dependents relying on your income and you have enough in assets to completely pay off all your debts plus any costs associated with your funeral and burial.
- You have enough in assets that, were your income suddenly to cease, your dependents would be able to continue living the lifestyle to which they’re accustomed.
What Kind and How Much?
Once you’ve determined that you have a need for life insurance, the next steps are to determine which kind is best for you and how much you require. If you already have insurance, either cash value or term life, then your question is whether or not you need more. Depending on how long ago your policy was written, many things may have happened in your living and working situations that will have changed the financial needs you had when taking out that coverage. Your income may have increased, possibly causing your family to increase their cost of living or living standards. Inflation will have also played a part in your recurring financial needs.
Other life changes that will dictate an increased amount of insurance coverage include:
- Adding children (or grandchildren) to the family
- Having you or your spouse become a stay-at-home childcare provider
- Taking on additional debt
How Much Will It Take?
Determining how much insurance coverage you need isn’t rocket science, but it’s also not something you can pinpoint exactly. It’s better to err on the high side than on the low side.
First, total up all your debt that you’ll want paid off in the event of your death, including funeral and burial expenses. Next, determine how many years your dependents will have to survive without your income and multiply this by your current annual income. Add to this the amount your kids will need to pay for college, if that’s your intention. Subtract from this current assets such as college funds, savings and current life insurance coverage. Do the calculations and you’ll know what you need. If your policy’s inadequate, buy additional coverage.