Life insurance is an essential part of planning for anyone who has dependents and financial liabilities that they would like coverage for. A good life insurance policy is selected with proper thought and is a process that should not be rushed. As you know, life insurance doesn’t just allow your dependents to cover their living expenses in the event of your death, a good life insurance policy can also help fulfill the dreams of your children after you’re gone.
So in short, if you have anyone relying on you financially, you should purchase a life insurance policy. If you’re a small business owner, you aren’t eligible for coverage and insurance through work, like you might be if you were an employee somewhere, so you’ll need to purchase a life insurance policy on your own.
Everyone has different needs and unique personal situations but there are a few key things one should consider when buying a life insurance policy.
A simple calculation is to add-up your take-home income for the whole year and multiply that by a number of years to determine an insurance amount. The time period for this is entirely up to you, but most people choose between five and ten years.
If you don’t currently have an income (like if you’re staying at home to raise your children), consider what the annual cost would be to replace the work you do at home. This would include things like the cost of childcare and housecleaning. You may also want to consider allocating some money to allow your spouse to take time off of work to grieve and spend with your children in the event of your death.
Mortgage and Other Debt
Secondly, calculate your mortgage payments and any other debt that you may have, such as car loans or credit card debt. Also, since all this planning is happening in preparation for an untimely death, it would be a great idea to add in funeral expenses and any projected medical bills. Losing a family member is difficult enough, but you can make things a little easier on your surviving loved ones by ensuring that any expenses related to your death are covered by your life insurance policy.
If you have children, then you likely have plans for their higher education and you already know that it will be a hefty expense. In the case of your passing, you want to be able to provide for the education of your children, so their higher education and future plans are not disturbed. Four-year public school education will cost around $125,000 per child. The expense of a private college or university will be even higher.
Add Up Current Finances and Assets
Any savings accounts, assets, and additional life insurance policies need to be accounted for to have a clearer financial picture. If you have a large amount of assets, you may not need as much life insurance as someone with only a little to their name.
Now with a clear picture of what you want to achieve and a number value of how much it is going to cost, you simply have to subtract your financial resources from the total expenses you’ll land on exactly how much life insurance you need.
There are online calculators as well as great term life and whole life insurance policies at National Guardian Life Insurance Company