How much life insurance do I really need?
That’s the one of the toughest decisions to make.
Here’s some tips to answer this question.
How Do I Decide on How Much Life Insurance to Carry?
The amount of life insurance that you need really boils down to answering 3 basic questions.
1. What do I want the life insurance to accomplish?
2. What are my assets?
3. What are my debts?
The formula is basically (Needs and/or Assets) – Debts x Length of Time = Amount of Life Insurance Coverage
These sound like simple questions, but let’s examine each step in a lot more detail. Each of you will have your own unique objectives and different circumstances.
1. What Do I Want the Life Insurance to Accomplish
This boils down to one thing –NEED!
Buying life insurance isn’t about making anyone rich, it’s about taking of the people who depend on you and their future financial survival. If your income is vital for the financial maintenance of your family, you have to figure how your survivors are going to manage when you’re gone.
So, take a look at where you are now and cast your gaze into the future. Let’s start with where you are right now.
You might be single and about to get married. You could be already married and are thinking about having children, or you might already have 1 or 2 little ones and are maybe expecting another bundle of joy.
You might be currently renting but saving up to buy a house or condo, or you already own your home. You could be a young professional in the first year of your new budding career. Or, you might own and have been building your own business for several years.
What do you want a life insurance policy to cover? What do you foresee down the road such as 5, 10, 20 or even 30 years for yourself and your family – existing and future?
Here are some objectives to consider how much life insurance you might need, and what objectives you want to use a policy to cover.
- Income replacement for (x) number of years
- Maintaining the standard of living for your family for (x) number of years
- All of your current debts and even future ones
- Your burial expenses
- Your living circumstances such as a mortgage
- Inflation (assume 2-3%)
- Current needs and future needs
- Children’s college tuition
- Medical expenses (if you currently have or anticipate health problems down the road – is your current health insurance going to be sufficient?)
- Leave a financial legacy for the kids or grandchildren
- Donate the life insurance proceeds to your favourite charity(s)
- Business debts – if you are a sole proprietor or in partnership
That’s step 1 – figuring out your needs or objectives of what you want a life insurance policy to cover.
Now, lets get down to some dollars and cents questions.continue page 2……