Finding the right fit between a life insurance policy and your lifestyle can be an important part of preparing for your financial future. But trying to sift through policies by type, coverage, and monthly expense can be a challenge.
If you’re in the market for life insurance or are looking to expand your personal coverage, ask yourself the following questions to get a better feel for the coverage may be a good fit for you.
Do I Actually Need Life Insurance?
Without looking at every factor, there is no way to definitively say whether life insurance is something you do or don’t need. But, as with most financial products, there are certain individuals for whom life insurance is more ideal.
If you have dependents and want to ensure their financial protection in the event of your passing, you may wish to consider how a life insurance policy could benefit your financial plans. Life insurance can cover the expenses associated with a funeral and other arrangements, as well as cover family debts and provide a helpful payout for your dependents.
On the other hand, if you don’t have dependents or are otherwise financially prepared to cover expenses in the event of your passing, you may not need to worry about adding life insurance coverage to your financial planning.
What do I Need to Cover?
To determine the value you need from your life insurance policy, you need to know what expenses you need to cover after your death. These may include:
- Funeral expenses – Funeral expenses and other arrangements can easily top out in the tens of thousands of dollars. You don’t want to leave your family in the lurch with trying to cover these emotional expenses out of pocket.
- Debt coverage – After your passing, you will want your life insurance coverage to cover your debts in full. Depending on your age and lifestyle, you may have tens to hundreds of thousands of dollars of debt to pay off. Take into account factors like your mortgage, auto loans, student loans, and credit card debt when you tally your debt coverage to achieve your minimum life insurance coverage figure.
- Income replacement – If you are your family’s primary provider and have dependents to care for, it’s important to factor the loss of your income into your life insurance coverage figure. To achieve a ballpark figure for income replacement, multiply your yearly salary by ten years and use this number as a base for your income replacement. For example, if you make $50,000 yearly, you would want a minimum of $500,000 in life insurance coverage as income replacement.
Finally, add these figures together to discover your minimum coverage needs. For the individual with $300,000 in debt, requiring a $500,000 income replacement, and a funeral expense cushion of $20,000, the minimum life insurance coverage they’d need would be $820,000.
How Can I Determine which Plan is a Good Fit?
Finding a life insurance policy, or combination of policies, that meets your future needs and stays within your budget will likely take some careful research. Depending on your age, health, and income, you may have certain limits on the coverage for which you qualify.
Your financial advisor can help you put the pieces together to determine which life insurance policy(ies) make sense for your current lifestyle and future financial goals. To learn more about long-term financial planning, contact Jacob Sturgill for an initial consultation and personalized long-term planning roadmap.