How to Determine the Right Amount of Life Insurance

How to Determine the Right Amount of Life Insurance

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You have seen the advertisements for life insurance, with coverage ranging from about $10,000 to well over $1 million. Those amounts are far apart and offer varying levels of coverage ranging from a standard burial to providing your survivors with income for many years, a college education for you children and money for your surviving spouse’s retirement. Your life insurance coverage should suit your needs and take into consideration what your survivors will need for their long-term assistance.

Burial Costs

Consumers are often shocked when they learn just how much it costs to bury someone these days. It is bad enough that the death may be sudden — when you review the itemized bill from the funeral home, you soon will see a list of expenses that can drive up funeral costs appreciably.

Those expenses include removing the descendant’s body from the place of death and transporting it to a funeral home. If you die away from home, your body will need to be prepared and transported, typically by a commercial airline. Permits, licenses and related fees will need to be paid and your funeral company will be required to meet the aircraft when it arrives at the airport.

Expenses related to your burial include a casket or a burial container, funeral services, embalming, a vault and liner, visitation expenses, limousine rental, flowers and related costs. A low-budget funeral will cost from $5,000, but most funerals today can easily top $10,000 and approach $20,000.

Your Children

If you are childless or have grown children, your life insurance needs will be far different from the family man or woman. With children living at home, the need to provide for them will necessitate increased insurance coverage, something you can determine by keying in a few factors.

The first factor are the number of children that you have. Your life insurance must be increased to provide coverage for each one.

The second factor are the ages of your children. Say that you have three children: ages 17, 13 and 11. The oldest child will soon become independent, but there is another factor to consider: college. Likely, you will want to provide help for you offspring until a certain age, such as 22. Therefore with three children, you’ll need to consider how much insurance you need to offer for the next 11 years and factor in the ages of the two oldest children and inflation.

Current Income

Your family is used to what you make. Living on $75,000 per year means that your children are accustomed to having those needs met, something your surviving spouse might not be able to provide alone.

Consider that your children may take piano lessons, enjoy art classes, participate in the Boy Scouts, or even have special needs such as disability care or assistance. Those “amenities” can quickly disappear especially if cash availability is limited. Your surviving children not only will have to deal with the grief of your loss, but will find their lives altered in ways you might not have foreseen. With life insurance, you can provide for their needs and ensure that they lead lives that are wholesome and well-rounded.

Debt Management

When you die, you will leave behind your legacy. You also may leave behind a mound of debt, with no way for your family to pay down these costs. Such debt can easily offset the life insurance proceeds, leaving your family with dealing with more debt than they can handle.

You can obtain enough life insurance to pay off your house and handle credit card bills, a car loan and other expenses. Tally up your current debt and add that amount to your total insurance needs.

Your Insurance

In the example given here, figure that you will need $10,000 for burial insurance and $825,000 to provide a steady income until your last child finishes college. Add in college costs of $200,000 each, an outstanding mortgage of $300,000 and $100,000 to cover debt and you’re up to $1.835 million. That amount does not include what you might leave your spouse, putting your final life insurance needs in the $2-3 million range.

Ultimately, your life insurance needs may depend also on the type of coverage that you can afford. Talk with an insurance agent to learn about your options and select a life insurance plan that is right for you.

See Also What You Need to Know About Renter’s Insurance

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