Buying life insurance is a big decision. It is an essential one for those who have dependents. Having the right amount is also important. But, putting a value on your family’s needs is difficult.
A key concern is your family’s cost of living needs. These are the funds your family needs to maintain their quality of life. What is the right amount for your family?
Start By Estimating Your Current Needs
To determine how much life insurance your family needs in the future, consider your current needs. Look at your budget. Consider how much money you bring in each year. Here are a few things to keep in mind.
- Your policy’s value should cover the cost of living needs for your family for as long as you like. This may be a year, two years, or even ten years.
- Consider how much income you contribute to the family. Factor in the cost of inflation, too. This can help give you an idea of how much your family would receive if you were still contributing.
- Consider the type of work you would do if you didn't pass and any pay raises you may receive.
Knowing your needs is a good place to start. However, you also need to consider other factors.
Key Factors to Consider for Life Insurance Value
Replacing your income is a good start. However, many times, families need more than this if one income earner dies. You may wish to add these components to the value of your life insurance policy as well.
- What debts do you have? Consider credit cards, personal loans, and your mortgage. You can create a policy large enough to pay off these debts at the time of your death.
- What will it cost to bury you? Though you may not want to think about this, don't skip doing so. Burial costs can range from $5,000 up to $25,000 or more depending on your family’s needs. Make sure your family can pay for your funeral.
- What do you want to leave behind for other needs? You may wish to pay for your child’s college education. You may wish to fund your spouse’s retirement accounts. This means adding value to your policy.
Flexibility is an important component of life insurance. You generally get to choose how much is right for your family. You can adjust this year after year to better match your family’s needs. Be sure your policy offers, at a minimum, the coverage to meet their cost of living needs.