Insurance is a way for an individual or a family to prepare for unexpected events. Life insurance is one way to get ready for the worst kind of emergency, which is the death of a loved one. This could be for the main breadwinner or for anyone in the family. Because so many things can happen to people, most of them out of the blue, we want to be ready in case it does, but we also hope it doesn't. This article will show you how to figure out how much life insurance you need so that you can be as prepared as possible.
Here are some things you should think about when deciding how much coverage you need.
Your annual costs
The goal of a life insurance policy is to keep the family living at the same level for a while if the person who brings in the most money dies. This means you have to figure out exactly how much it costs for the family to keep living at the same level for a year. To account for the fact that prices are going up due to inflation, you should add a percentage increase every year, which could be as much as 8%.
Getting the kids an education
Add how much it will cost to send each child to college all the way through to this number. This may be hard to do, though, since college costs are going up quickly. You should, however, add an increase by a certain percentage for every year until they graduate. A suggested amount would be to raise the current tuition by 1 or 2% each year before and during college.
Current Debts
The total amount of life insurance coverage should also include all of your current debts. By adding this amount, the family could keep living at the same level without having to worry about debt. If you still owe money on your mortgage, credit card debt, bills for your own education, and any other bills should be added to the total.
Funeral Costs
Everything has gotten a lot more expensive, including funerals. On average, funerals now cost about $6,500. Still, to be safe, you should add another $4-$5,000 so that there are no debts after the funeral.
Inheritance
If you can, you should leave your kids a little extra money to help them get started and feel safe in life while you're gone. Figure out how much you want each one to pay.
add that amount to what you already have.
Lastly, you may want to add a couple of other things to your calculations, depending on your situation. If your parents might need to go to a nursing home soon, or if you're getting divorced and need to include that, or if you want to give money to a religious group or a charity, you could add that. It mostly depends on how much money you have. You won't want to buy life insurance quickly if you don't know much about it, and you'll also want to compare prices.
