One of the responsibilities with being a parent is making sure your family is taken care of, even when you are gone; life insurance is one way to ensure that your family is taken care of financially if something were to happen to you. Now that we have that established you must be asking yourself how much life insurance is enough? What is the minimum amount your survivors would need for the monetary loss of you or your spouse? It is estimated to raise a child from birth to college can cost anywhere in the neighborhood of $700,000! Here are some quick and simple ways to get an idea of how much your life insurance policy should be:
- · Option 1: Determining Expenses (-) Assets: Figure a rough estimate of your annual family budget. This would include your mortgage, child care, insurance, food, basic living expenses, as well as extra expenses including vacations, and future education plans such as private school and college. Next, estimate a figure for your assets such as savings, social security benefits, or any other income that will be there such as the income of a surviving spouse. Remember, stay-at-home spouses contribute a lot to the family income by by-passing child care, travel, cleaning, cooking and associated costs, therefore would need to be insured also.
- · Option 2: Salary Estimate: Another quick, but more general way, would be to take your current annual salary and multiply that by 7. For example, if you make 60,000/per year then I would recommend buying a minimum of $420,000($60,000 X 7= $420,000).
If your estimate is high, good, it’s probably right. If you are worried about the premium cost, I would recommend choosing term life insurance. You can get a policy for the time you would need it (the amount of time your kids would depend on you) for a lower premium than other insurance options.
When do I Need Life Insurance?
1. Considering starting a family: If you are considering starting a family you should consider purchasing life insurance. Your rates will be cheaper now than when you get older and your future children will be depending on your income.
3. Established Families: You need life insurance now if you have a family that depends on you.
I am a stay-at-home-mom and I don’t bring any income into our household, so why would we need life insurance on me? The cost of replacing someone to do domestic chores, home budgeting, and childcare should always be considered if you die, it can cause significant financial problems for the surviving family. Funeral expenses can also be very costly if they are not already budgeted.
4. Young Single Adults: The reason a single adult would typically need life insurance would be to pay for their own funeral costs or if they help support an elderly parent or other person they may care for financially.
5. Couples without Children: Both persons in this situation would need to decide if they would want life insurance. If both persons are bringing in an income that they feel comfortable living on alone if their partner should pass away, then life insurance would not be necessary except if they wanted to cover their funeral costs. But, maybe in some instances one working spouse contributes more to the income or would want to leave their significant other in a better financial position, then as long as purchasing a life insurance policy would not be a financial burden, it could be an option.
6. Elderly: As long as you do not have people depending on your income for support, life insurance at this stage in your life would not be necessary, unless again, you do not have any other means to pay for your funeral expenses. But, be aware that purchasing a life insurance policy at this age can be very expensive. Before doing so, first talk to a financial advisor or accountant about looking into other saving options to pay for your funeral costs before considering life insurance.
Find out more about life insurance by calling our office, or get a free Louisville Life Insurance quote online today.