Top Question People Ask: How Much Life Insurance Do I Really Need?
Today, the life insurance industry is worth more than $40 billion or so.
This means that you can research and choose whatever kind of life insurance plan is best for you. While cost isn’t everything, you will definitely need to do some research until you find the most affordable plan for your life and lifestyle.
But you might be asking yourself, how much life insurance do I really need?
There are a variety of factors that you will want to think about. Follow the strategies and points of information below as you start shopping for the best life insurance plan.
The Benefits of Having the Best and the Right Type of Life Insurance Coverage
First things first, you should get to know what life insurance does for you and why it is absolutely essential.
Having life insurance is a part of wealth protection, and should be prioritized as one of the more important parts of this lifelong strategy. When you have a sound life insurance plan, you can make sure that your dependents are taken care of after your death.
You will also be able to pass on death benefits without your dependents taking on a tax burden. These benefits are tax-free both in terms of income tax and estate tax.
What’s more, having access to a life insurance plan makes it so that you are able to ease the stress and burden that your family members deal with after your death. These situations can become complicated and muddled in legal issues, so having an ironclad life insurance plan makes things easier for everyone involved.
You will receive payouts for everything from your funeral costs to the money that your family members need to live for the rest of their lives.
How Much Life Insurance Do I Really Need?
Now that you know why life insurance is so important, you will want to begin calculating how much you need and how much you should be paying.
On average, a quality life insurance plan costs approximately $70 per month for $250,000 worth of insurance. This is a simplified estimate, since there are all sorts of factors that come into play, and plenty of different life insurance plans that you can shop for.
Here are some of the points that you will need to consider when you are thinking about buying life insurance and figuring out how much you actually need:
1. Think 10 to 15 Times Your Income
One of the biggest rules of thumb that you need to think about is for you to get a life insurance policy that is equivalent to between 10 times and 15 times your current income level.
This way, you know that you are providing enough financial protection for your family to live how they need to, without worrying about any shortfalls. Make sure that you assess your financial situation so that you can make calculations as needed.
For instance, if you work as a lawyer making a median income of approximately $120,000 per year, you will need a life insurance policy worth no less than $1.2 million. Conversely, a school teacher earning $30,000 per year would want to opt for a plan that has a value between at least $300,000 and $450,000.
Taking the time to make these calculations will allow you to buy the exact life insurance plan that you need.
2. Consider Your Job Situation and Life Expenses
Since you are in the midst of purchasing a life insurance plan, you need to also take an honest look at your current job situation and expenses.
While it is important that you purchase whatever kind of insurance plan you need, you also don’t want to bite off more than you can chew. Shop around for premiums that you know will be affordable, but also consider the bills and expenses that you have on a regular basis.
3. Think About Your Age
Life insurance becomes a lot more important to have, depending on your age.
When you are young and single you will need far less insurance than someone that is older and with many dependents. With that said, you may also expect to pay more if you are up there in age, or if you have any particular health complications.
Make sure that you are considering your age whenever it is time to purchase a life insurance policy.
4. Consider Your Dependants
The needs of your dependants will also play a huge role when it comes to how much life insurance you will have to purchase.
If your dependants have certain medical needs, for instance, their health insurance will be more expensive and they will likely rack up plenty of bills. Take the time to factor in exactly how many dependents you have and what core needs your life insurance plan will need to address.
That way, you can tailor the plan to your liking and figure out how much total coverage you need.
5. Research the Different Types of Life Insurance
It is important that you not only consider the need for life insurance but also think about exactly what kind of life insurance policy you require.
This will affect both what you pay for the plan and what you need from it. The main types of life insurance coverage include whole life and term life. With whole life insurance, your coverage lasts your entire lifetime and holds a significant cash value. Term life insurance refers to coverage that gives you more flexibility and expiration dates.
Some other types of life insurance that you can purchase include universal life insurance, variable life insurance, and group life insurance.
6. Make Use of the Investment Potential
It is also important to realize that life insurance brings about plenty of investment potential.
For instance, you can use the bank on yourself concept to buy a health insurance plan that builds substantial savings and interest and pays cash dividends. You can use these plans similar to how you use a mutual fund and can cut yourself checks for things like purchasing a home or making renovations.
Plenty of life insurance policies hold cash value that you can use to your advantage however you see fit.
7. Put the DIME Theory to Use
When you are looking into a life insurance policy, you should always be aware of the DIME theory.
With this model of consideration, you will need to consider debt, income, mortgage expenses and educational expenses (DIME). These are some of the most important matters that will affect what kind of life insurance plan you come up with.
If you can answer these questions openly and honestly, it will be easier for you to determine the exact kind of policy that will take care of your wealth and that will pass this wealth along to your dependents.
8. Weigh the Implications of Your Debt
It is important that you figure out not only how much debt you owe, but what kind of debt you owe. These implications will come into play at the time of your death and will dictate whether or not you have enough in the bank to easily pay it off.
Make sure that you never pass this debt on to your loved ones, and create a life insurance plan that prevents that.
9. Think About Your Loved Ones’ Educational Expenses
How much will it cost for your kids and grandkids to go to college?
These are the types of things you will need to account for when putting together a life insurance plan. Make sure that you think about the full picture of educational expenses, since college tuition and room and board are going up each and every year.
The cost of education is substantial in this day and age, so always plan accordingly.
10. Shop Around With the Best Insurance Providers
Finally, it is important that you shop around with nothing but the best life insurance providers. They are the ones responsible for piecing together a plan for you, and it will dictate how much you actually pay.
No matter what kind of policy you go with, take the time to set up a cushion that will protect your loved ones.
They’ll have everyday expenses, such as food, water, and shelter. They will also need to pay for things like car insurance and utility bills.
Look for the plan that’s the most affordable and provided by the most credible professionals.
Shop For the Life Insurance That You Need
So how much life insurance do I need?
It’s important that you do everything you need to get your hands on a plan that is both the most affordable and productive for you. The tips above should help.
Reach out to us for all of your life insurance needs.