For anyone that has just recently started to explore their life insurance purchasing options, the sheer quantity of options can be a bit overwhelming. When you sit down and begin researching whole life insurance vs. term life insurance, you begin to see that there are clearly definable characteristics that accompany each policy type and it begins to make sense.
What people often struggle most with is deciding the amount at which they would like their policy to be valued. After all, the more coverage you purchase, the higher the premium you will be responsible for paying each month. A valid concern, you don’t want to be over, and especially not under, insured.
So how do you decide on a policy with a level of coverage that is right for your family?
Here are three ways to help you figure out how much life insurance you need.
Consider Lost Income
Chances are, your income is important in sustaining a comfortable quality of life for your family. In the event of your passing, how much income will your family lose annually? Will your spouse’s income be suitable for sustaining the same standard of living that your family has grown accustomed to? Most people purchase life insurance to provide a secure future for their loved ones should they pass, so it is important to assure that the coverage amount that you are applying for will be enough to replace lost income.
In married couples, both spouses should apply for policies and ensure that their income is taken into account when determining a level of coverage.
The Value of a Stay at Home Parent
Earned income isn’t the only financial factor to consider when deciding on a coverage amount. It’s common to overlook the value of a stay at home parent due to the lack of income the role generates. The stay at home parent is a huge financial relief to families, especially families that have several young children.
Be sure to account for childcare expenses and other expenses that would present in the absence of the stay at home parent.
Will you be able to afford daycare or after school program and transportation services? This is one important detail that shouldn’t be overlooked.
Total Up Your Debt
Do you have a home mortgage or a car payment? How about credit card debt? Have you been to college? Most Americans have some form of debt. It’s always a good idea to include the total of your debt when calculating the total amount of coverage you need to apply for.
Debt is a huge financial burden, and with the loss of an income and the inevitable stress that accompanies a loss, the last thing you want your family to have to endure in the event of you or your spouse’s passing is complete financial distress.
Account for remaining car loans, home loans, financial aid loans, and whatever other outstanding debt you may collectively have as a family. Nobody wants their family to go without.
The best way to get started in determining how much coverage your family needs, is to simply make a list of all expenses, debt, and total income that would need to be replaced. The total that you settle at should give you a good approximation of how much your policy should be worth. As always, if you have questions or encounter any confusion, a licensed professional trained in life insurance policy can be a huge help in pointing you in the right direction.
If you are unsure about life insurance, then you can check out a few of our other articles that will help you get started: