When it comes to figuring out your life insurance needs, it might seem tricky and confusing. Well, it’s actually not about how much life insurance you need. It’s simply how much your family will need when you’ll no longer be with them.
How much coverage should you choose for life insurance?
Determine whether or not you need life insurance
Generally, not every individual needs life insurance. For example, if you’re still young without any dependants, arguably there is no need for life insurance. But if you’re planning to have dependents, it will be an imperative idea to get insurance when you’re still young.
Determine the amount of life insurance coverage you should carry using either the lump sum need method or the income replacement method. The lump sum need method will help you calculate the money needed to pay:
Emergency needsThe other method calculates the amount you will need to replace a certain percentage of your income for a specific number of years, in most cases, until when your mortgage is paid off or when your youngest son/daughter gets out of college.
Calculate future spending
Determine the type of insurance you need
Cash-value insurance is also referred to as permanent insurance. It can be one of the most confusing subjects when it comes to personal finance. Permanent insurance can be an excellent product; however, it’s a bit difficult to understand. Most of the insurance salespeople take advantage of its complexity and go selling high-commission policies when in fact other policies would be more suitable.
If you choose the coverage that you will pay an annual premium of $10,000 or more per year, it’s very important that you consider retaining a fee-only insurance advisor who doesn’t have any financial stake in your decision. Having the advisors at your side can certainly save you far more than their fee. You will even feel more assured because their advice is objective and in your best interest.
Regular reviews on your coverage
You should consider buying smaller, multiple life policies, instead of going for one larger policy, it will be easy to vary your coverage as your needs change.