Life Insurance: How Much Do I Need?

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A life insurance policy aims to provide the money that is lost when the policy owner dies. For example, if a wife and a husband both work outside the home they may each choose to insure themselves for the amount they earn and list the other as the beneficiary. That way if one spouse dies, the insurance policy will supplement the income of the surviving spouse.

How much to purchase?

The most important question to answer when buying a life insurance policy is how much you need to purchase. The answer varies according to the financial needs of heirs and your current life circumstances. Someone just starting out in life would plan differently than a person who is well-established, since costs and types of policies vary a great deal.

If you're planning on buying a life insurance policy, it's important to determine how much income your family would need to take care of immediate and long-term expenses. They would need money right away to cover your funeral costs, medical bills, living expenses, and debts. Beyond that you'd look at how much it would take to keep them living in their current style. It's a good idea to sit down with a calculator and look at your total financial picture, taking into account any savings and investments that would help them survive.

A single person with no children may not need life insurance if they have enough money saved or invested to cover their funeral expenses and outstanding debts. Without money in reserve, it would be up to their survivors to cover these expenses.

A person with a family should look at their mortgage, taxes, outstanding debts, and future considerations such as tuition for any children. This would include lower and higher education, taking into consideration escalating costs.

Because we all go through various life stages, it's important to evaluate your insurance needs and policies each year. Being overinsured could cost you and being underinsured would hurt your heirs.

Because of the cost, many young people purchase a minimum of coverage with an affordable premium. As they advance in their careers and can afford more, they often increase the coverage and buy a policy that also acts as an investment. Usually this is due to people taking on more obligations such as a bigger mortgage and more expenses.

Although the subject of life insurance and how much to carry is complicated, you can find plenty of help. The internet is a great resource; many websites provide online life insurance calculators to help you determine how much you need. You can also consult with life insurance agents and brokers who can help you navigate the terminology and various policies.

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