How Much Life Insurance Do I Need?
When it comes to figuring out how much life insurance you need, it can be hard to know where to start. There are so many factors to consider, such as how much your loved ones would need if you passed away, the amount of debt you may have accumulated, and the cost of your funeral expenses.
Thankfully, we have a formula and a tool that can help you determine how much life insurance you need! Check out this guide to learn more about life insurance needs calculators and how they can help you determine the right amount of coverage for your situation.
What is Life Insurance
Life insurance is a financial planning tool that helps provide financial security for your family if you die prematurely. The policy pays out in a lump sum, providing immediate resources for things like medical bills, funeral costs, debt, or estate taxes. Life insurance is an important part of any responsible adult’s financial plan—one that has been proven over time to give people peace of mind and help them sleep better at night.
However, there are different types of life insurance designed for different circumstances and needs; choosing one can get confusing fast. That’s why it’s important to do your research before buying a policy—to determine how much life insurance you need or whether it makes sense for you at all. Here’s what you need to know about making that determination.
Simply having a life insurance policy still may not solve your loved ones’ financial issues if the unexpected were to occur. That’s because many who just simply have life insurance don’t possess nearly enough coverage.
So again, that brings up the question of how much life insurance should I have? See our formula below.
How to Determine How Much Life Insurance You Need?
While you are apt to find life insurance needs analysis calculators scattered all over the Internet, going through these coverage estimates could end up leaving you more confused than ever. But, by working with a simple rule of thumb, you will be able to narrow down the appropriate figure and simply determine your life insurance needs.
By just using the acronym DIME, you can easily narrow down the financial needs that your survivors are likely to have, and in turn, come up with an appropriate number. These financial needs include the following:
D – Debt and Final Expenses.
In this area, you will need to add up all of the debts that you owe – other than your mortgage balance. These may include any vehicle loans that you have outstanding, personal loans, business loans, and the like. Also included in this section would be your estimated funeral costs and other final expenses. Today, final expenses alone can run in the neighborhood of $8,000 to $10,000 – particularly when you add in the cost of a burial plot and headstone, a memorial service, flowers, and transportation.
I – Income.
The income section will comprise the amount of income that your survivors would need for a certain number of years. For example, if you have small children dependents, you should consider how long it would be before the youngest moves out of the house and your spouse could start to earn income going forward. Knowing that there is enough income replacement for a set number of years can provide those you love with the peace of mind in knowing that they can focus on the things that are important – each other. A Rule of thumbs is to have at least 10 times your annual income.
M – Mortgage.
If you have a mortgage balance, that amount would go here. Being able to pay off the mortgage can allow your loved ones to remain in the place that they call home, rather than having to move out because they can no longer afford to live there. This component can be especially important if your income made up all (or even some) of the monthly payment to the mortgage company.
E – Education.
In the education section, you’ll come up with an estimated dollar amount for sending your children to college in the future. The cost of higher education and student loans continues to rise significantly. So, if you have children that are still very young, be sure to factor in the dollar amount including inflation.
Do I really Need to Buy Life Insurance?
Life insurance is an important part of any estate plan. But do you really need to buy life insurance? It depends on your needs, but let’s start with some basics. If you have a spouse and children, life insurance is almost certainly going to be a good idea. It can help cover financial obligations left behind such as credit card debt, child care, college tuition, home mortgage, car loans, and more.
And if you don’t have a spouse or children, it can still make sense (for reasons we’ll get into in just a bit). The key question isn’t whether or not life insurance is worth it; rather, it’s how much life insurance you actually need. And that requires figuring out all sorts of variables—most importantly what will happen financially when each member of your family passes away.
Coming up With a Solid Amount to Buy
In order to help you come up with a good, solid figure for the total amount of life insurance coverage you need, take the results from each of the DIME sections and plug them into a calculator to add up the total amount of coverage you might need. This life insurance calculator will provide you with the result.
Do I need Life Insurance On My Spouse?
Life insurance is a useful financial planning tool for you and your spouse. If your spouse were to die, how would you pay for their funeral or replace their income? Or what if they were hit by a car and had ongoing medical expenses? Life insurance can help with these types of costs. Life insurance on your spouse gives you peace of mind that, should something happen, there’s money there for you.
How Much Term Life Insurance Do I Need?
Term life insurance has one big advantage over permanent life insurance. You can buy a lot more death benefit for your dollar when choosing term insurance. How much term life insurance you need can be calculated by the same D.I.M.E. formula above. Another good rule of thumbs with term insurance is to buy 10 times your annual salary. So if your income is $100,000 you should buy at least a million-dollar term policy.
Types of Life Insurance: Which is Right for You?
There are many different types of life insurance, each providing coverage for a particular type of risk. If you’re trying to figure out which type is right for you, it helps to think about your financial needs and goals. Do you have young children? Do your beneficiaries need cash at death that’s protected from estate taxes? We can help by asking questions and helping you determine what kind of coverage best fits your situation. Regardless of how much life insurance you need, working with an individual Insurance Geek is often your best bet for getting quality protection at a fair price.
According to recent statistics, one in three families admit that a financial disaster would be more than likely – if not absolutely – within one month if the household breadwinner were to suddenly pass away.
So certainly, one way to help ensure that this won’t happen is to purchase life insurance coverage.
If you still have more questions regarding how much life insurance should you buy, or if you already have a good estimate and would like to obtain quotes from several highly-rated life insurance companies, then you can contact us.
We focus solely on insurance – and, because we are affiliated with more than 30 top life insurance companies, we can provide you with multiple life insurance quotes to compare. This can help you in determining which plan may meet your life insurance coverage needs, as well as your budget.
When you have people counting on you financially, you can make sure that you don’t let them down, regardless of what happens in the future. So, contact Insurance Geek now to lock in your family’s financial protection.