Life insurance – not typically anyone’s favorite topic of conversation.
Even though it’s not fun to think/talk about, it’s oh so necessary – when you don’t have enough of it, you REALLY feel it.
Erin and Steve actually had two new term policies sitting on their desk at home. All they needed to do was finish the underwriting process – but they didn’t. Hopefully Erin’s Story will motivate you to take action – TODAY!
Life insurance is a complex topic. Everyone has an opinion on it – and they are often vastly different from one another. Rather than focus on which types of life insurance are best/most appropriate, let’s focus instead on getting the right amount in place – for your family.
How Much Is Enough?
Wouldn’t it be easy if you knew the answer to that question with 100% certainty? It seems to be an ever-changing number for most. It’s a number that’s also completely unique to your situation – dependent on your lifestyle, income, number/age of children, level of debt, etc.
It doesn’t help that there are so many theories on how to calculate the right answer either. You could take a human life value approach, debt pay-off, or straight up income replacement. Or some combination of those three.
This CNN Money article talks about someone that makes $50,000 per year should have anywhere from $250-500k in coverage. The New York Times on the other hand claims that the life insurance industry’s rule of thumb is 10x your annual salary. Which is right? Both are generalizations – not specific to your situation. Take some time to think about your individual family’s needs and ask yourself the following questions to get closer to the answer.
Good Questions to Ask
- Do you have a survivor need? Is anyone depending on you that if you died today would be negatively impacted? Are you depending on anyone else?
- How much debt to you have? Make a list of your liabilities – mortgage and consumer debt and tally it up. Would your family continue to live in your current home if you passed away today?
- What are your family’s expenses? How would they change if something happened to you or your spouse? Would you need to hire help for the home or additional childcare?
- How much are you currently saving? What are your savings goals? Are you wanting to help your children with college tuition costs? Are you on track to fund your retirement goal?
- Are you making any rate of return or inflation assumptions? Are they realistic?
Figuring It out for Yourself
I think it’s important that you play out the scenario in your head to see how your family would be impacted without you here. If you contribute to the household financially, how much would it cost to sufficiently replace you? Would the goals of your remaining family members still be carried out?
If you’re the primary caregiver, how would your family replace you? Would they have to hire outside help? How much would that cost? Besides caring for the children, are there things that you’re responsible for that would still need to get done (home maintenance, etc)?
What about a grieving period? Would you want to make sure that you could provide for your spouse to not work for a period of time if you could?
More Art Than Science
As you can see calculating your life insurance needs is more of an art than a science in most cases. Personally, I’d rather err on the side of having a little too much than not enough. It may make sense to calculate straight income replacement (like the 10x your annual salary assumption above) AND try to calculate your needs by answering some of the above questions.
Compare the two – are they very far apart? If you’re still unsure (or not wanting to do the math yourself), consult a professional – either a financial planner that can evaluate your entire situation or an insurance professional that can help you to look at your individual life insurance needs.
Take a few minutes today to tally up what coverage (if any) you currently have in place. Ask yourself some of the above questions to get an idea if it is in the ballpark of being enough.
Seek help if you’re still unsure. Figure out how much life insurance you need and then make sure to start/complete the application process – TODAY!
Have you been putting off reviewing your life insurance coverage?
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