How Much Life Insurance Coverage Do You Need?
It can be rough planning for your requirement. Buying life insurance is an important component of your retirement plan, but how much do you need?
There are all sorts of formulas out there - many recommend buying life insurance coverage that's equal to as much as ten times your annual income. Online life insurance coverage calculators may also tell you that you should increase your insurance by as much as a million dollars, even if you already have coverage. The fact is that it varies a lot.
If you're like most people, you don't like to think about dying. But if you have people who are depending on you, you have to think about life insurance policy. There are a lot of misconceptions about life insurance coverage, and sometimes it's hard to determine exactly how much you need. There's a lot to think about.
Do You Really Need Life Insurance?
Maybe not! Buying life insurance doesn't necessarily make sense for every single person. If you don't have dependents, and you have enough money to cover your debts after you die, then maybe you don't need it. But if you do have dependents and debts that outweigh your assets, then you might want to consider buying life insurance coverage.
The type and range of life insurance that you consider buying will depend on a number of factors. For this you may need to take help from life insurance coverage calculators.
Insurance agents usually want to tell you that you won't be able to get life insurance coverage later in life. To a certain extent, that's true. Insurance companies make their money, quite simply, by gambling on how long you're likely to live. This means that if you're young, you'll get a better rate. If you're older, not so much! Online life insurance coverage calculators can be of immense help.
The flip side to this is that people are living much longer than they used to. So more young people are paying on life insurance policies; thereby reducing the life insurance coverage rates for older people.
Just because you're young, that doesn't necessarily mean that you'll find it easier to get cheaper life insurance coverage. It's all about the odds - maybe your lifestyle isn't all that healthy. If you're a smoker, or if you have a pre-existing condition, you can expect that your premiums of life insurance policy will be higher.
Evaluating Your Needs
When you're thinking about buying life insurance, you'll have to think about how much money your dependents are going to need in the event of your death. In short, how comprehensive is your life insurance coverage. Life insurance coverage calculators can make your easier. When you die, your inheritors are going to have to pay off all your debts - your mortgage, your car loan, anything you owe on your credit cards, etc.
They're also going to have to deal with the fact that you are no longer bringing income into the household. So, if you're the only source of income for your household, you're going to have to make sure that your life insurance policy replaces that income. If you brought in, say, $40,000 per year into your household, then you'll probably need a life insurance policy valued at about $500,000 to cover your family for your loss of income. Remember, too, that this doesn't cover your debts.
Income replacement is a huge factor in determining how much life insurance coverage you need. If you're concerned about paying for your children's education, in addition to covering your mortgage, then that means that you should likely be carrying life insurance to the tune of at least $840,000 based on current tuition rates. Life insurance coverage calculators can reduce your work of coverage estimation to a great extent.
What Should You Do?
Consider what you want to have covered through your life insurance policy. Obviously, you want to make sure that your survivors can continue to live in the family home if something happens to you, so you'll need to insure yourself accordingly. If you have other concerns, you may have to increase your life insurance coverage.
If you're considering life insurance just to cover debt and allow your survivors to stay in the family home, look at life insurance coverage that you may already have on your mortgage or your credit cards. Often, if you die, those debts are written off. So before you add on to your life insurance policy, look at other options. If they're not available, though, consider adding on to your life insurance policy to protect the people you love.
Should You Go Low?
You might be tempted, in a recovering market, to low-ball your life insurance coverage. But if you do, and you end up having events in your life that require more coverage, you could be behind the eighth ball. Instead of going with the general rules of thumb, you're better off looking seriously at your needs taking help of life insurance coverage calculators and coming up with an effective approach.
Keep in mind that life insurance coverage is what allows your family members to stay in the family home, pay the bills, and live their lives in much the same way as they would if you were still around.
You want to think not just about what happens long after your death, but what happens immediately. Life insurance coverage calculators show that the average funeral can cost up to $20,000. So when you're considering burial expenses, you should likely plan on at least $15,000 in a life insurance policy.
When you're considering insurance coverage, you'll also want to think about your mortgage and your other debts, like car loans, student loans, credit card debt, and anything else that might place a burden on your survivors. Once you're gone, they're still on the hook. Life insurance coverage thus forms an important part of a good life insurance plan.
Do you want to put your kids through college? Consider this - tuition costs have been ascending by about 5% in any given year. That's the same rate that your life insurance plan will be expected to grow. So, if you want your life insurance coverage to include kid's education, then you should consider increasing your life insurance policy in case they're in school once you've passed on.
Once you've thought about your funeral, your debts, and your kids' education, you won't actually have to worry about replacing all of your income. But you should still consider a life insurance coverage that covers at least 50% of what you're earnings before taxes in order to make sure that your family remains comfortable in the event of your demise. Online life insurance coverage calculators prove helpful in this regard.
Once you've considered mortgages, education, and income replacement, you should have a good idea of exactly what your life insurance policy should cover. If you're wondering about actual numbers, you should probably think of life insurance coverage of approximately fifty percent of your current earnings, pre-tax, until you plan to retire. If you earn, say, a hundred thousand dollars annually, then you'd cut that in half ($50,000) and then divide by 0.05 - that would give you a figure of one million dollars in insurance.
Of course, you can tweak this figure to work within your individual circumstances. As an example, you might increase it if you don't have a pension plan, but your might reduce it if your spouse earns a lot of money. For most families, you'll likely find out using life insurance coverage calculators that the amount will work out to at least a million dollars - but don't let that scare you. With term insurance, you may end up only paying a few hundred dollars a year for more than adequate life insurance coverage.
You'll also want to consider how long you're likely to need life insurance coverage. If you're in good physical shape, you can buy an insurance policy that will cover you for 20 or so years, and not cost you a whole lot. Term coverage prices are dropping, and you can buy low now, and also likely renew low later.
You might also be able to convert a term policy to permanent life insurance policy, which will remain in place regardless of the state of your health. If you think you'll need coverage for a long time, this can be a good deal for you.
When Do You Need More Coverage?
If you're getting married, if you have a child, buying a home, or you are ready to retire, you may want to consider increasing your life insurance coverage plan in order to protect your loved ones if you should pass.
Ideally, you should buy when you're young - life insurance policy gets more expensive as you age. How much life insurance coverage you need simply depends on what position you want to see in your heirs if you die. Online life insurance coverage calculators can ease your task of searching a full coverage life insurance.