You’ve decided that you need life insurance coverage to protect yourself and your loved ones. You know what kind of policy you need and how long you want the coverage to last. Now, it’s time to choose how much that policy will be worth.
There are many personal factors that go into determining how much life insurance coverage you should buy. The right answer will be different for everyone, and may even change as the years go on.
Here’s a look at some things to consider when assessing the coverage amount (i.e., death benefit) you need on your policy.
If you have a spouse, partner, children, sibling, or even parents who rely on you for financial support, you should buy enough life insurance coverage to replace your income for at least seven to 10 years, as a general rule of thumb. This relieves your loved ones of any sudden financial burden, and allows them to maintain their standard of living even in your absence.
You can also choose how many years you’ll need to cover your income depending on things like the age of your children or how long your spouse has until retirement.
For example, if you earn $50,000 a year and want your child to be protected until they leave for college in six years, you need to buy at least $300,000 in coverage.No matter what your coverage needs are, Fiona, in partnership with LeapLife, can assist by matching you with personalized life insurance policy quotes. See what rates you’re eligible for, today.GET QUOTES
As far as your loved ones are concerned, no one could ever take your place. If you were to die, though, your life insurance coverage can help fill your shoes to some extent. It ensures that your family isn’t burdened with all of the many hats you wear each day.
This is an especially important factor for stay-at-home parents. Regardless of your income outside the home, you provide your family with a slew of valuable services, which would need to be outsourced in your absence. This could include:
Before- and after-school care
Nanny and/or babysitter
Grocery delivery service
House cleaning service
Be sure to consider the cost of these lost services when adding up your desired life insurance coverage amount.
If you leave behind debt — especially any sort of shared debt that would suddenly be the responsibility of your spouse or other co-signer — factor it into your life insurance policy.
This includes big balances like the mortgage on your home, auto loans, personal loans, and shared credit card debt. If you have private student loan debt that a parent co-signed for, be sure to include that as well.
If you don’t have any shared debt and are unmarried, certain balances (like your credit cards) wouldn’t pass on to anyone else. They would, however, lay claim on your estate, which could impact your extended family or next of kin.
The cost of the average funeral in the US is more than $9,000, but may easily run your loved ones into the five figures, depending on your location and type of service. Final expenses can also include things like remaining medical bills, deductibles, and copays, for which your family would be left responsible.
Rather than leave that burden on them, factor it into your life insurance coverage. You may also want to speak with your significant other, children, and/or parents to make all other final wishes known.
This one isn’t necessary, but may be important to you and those you love. You can use life insurance coverage to pay for important milestones in your beneficiaries’ lives after you pass away. Big milestones might include:
Down payment on your child’s first home
If you intend for a portion of your life insurance benefit to be set aside for these expenses, be sure that your beneficiaries are aware. You may also want to include it in your will, or even set up a managed trust for that money.
Are certain causes or charitable organizations important to you? Does your alma mater hold a special place in your heart? Do you wish to leave the world a little better than you found it? Life insurance can help with all of this too.
Leaving a legacy can be different for everyone, and may be as simple as ensuring that your loved ones are comfortable and cared for in the years to come. If you want to make contributions to organizations, causes, or funds that are meaningful to you, though, you should include it in your life insurance calculation.
You can even make that organization a beneficiary of your policy, so there’s no confusion as to where the money goes once you pass.
Life is constantly changing. We get new jobs, get married, have kids, buy new homes… it’s hard to know what our financial needs (and those of our loved ones) will be in the decades to come. As a result, calculating how much life insurance coverage to buy can be a bit tricky.
The factors mentioned above will give you a good idea of how much coverage you truly need. Also note that, for most people, it’s better to err on the side of buying more coverage than buying too little. With Fiona, partnered with LeapLife, you can compare personalized life insurance policy quotes for all your coverage needs.
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