Life insurance isn’t something people usually enjoy talking about, mainly because the entire purpose of it is to help handle financial burden after your or a loved one’s death. If you have dependents, like older parents, a spouse, or children, you’ll need to have life insurance in case you pass away before your expenses are taken care of for your family. If your family depends on your income to pay necessary expenses, then life insurance is a must.
How much debt do you have?
It’s important to figure out how much debt you currently have when choosing life insurance. If you have a mortgage, you absolutely need life insurance so your family can continue living in your home. Figure out the remaining amount on the mortgage, any vehicles you have, or student loans. Having this amount in life insurance eases the burden on your dependents when it comes to paying off debts in the future.
How much is needed to live on?
For many people, this question is the only one they consider when purchasing life insurance. They figure out their family’s expenses and how much of that comes from their salary, then work it out from there. While it’s definitely important to consider, what you need to live on isn’t the only factor. Figure out how much of your income your family needs each month (after taxes), then multiply that by the amount of years you think they’ll need the income after you’re gone.
What are you saving for?
Most people add together their debt and living costs, but forget to account for future savings goals where their income would have been used. Do you have children that you want to send to college one day? Estimate how much tuition would be and how much you were planning on contributing so you can include that in your life insurance policy. Will new vehicles need to be purchased soon? What about retirement expenses for your spouse? Or even just your funeral costs? All of these aspects need to be considered when planning for a life insurance policy.
Other considerations
Depending how much your spouse works and makes, you may need less life insurance. You can add in money that’s already in savings or retirement accounts, because that lowers the amount of life insurance you’ll need. A general rule for life insurance is your post-tax income times ten (as in years), though this is too much or too little for some people. Ultimately, once you think you know how much insurance you need, it’s advisable that you speak with a financial advisor and get their expert opinion. Here’s an online calculator to help get you started with determining how much life insurance you’ll need.