Are you sure you have ENOUGH life insurance? Coverage amounts vary widely. A policy designed to cover burial expenses might provide around $10,000. Other life insurance policies can provide several millions of dollars in coverage. Your personal needs might be somewhere in between.
Don’t assume a small policy is enough.
The life insurance you get through your employer might only provide $25,000 or $50,000. Maybe $50,000 doesn’t sound like chump change, but when you’re talking about paying off a mortgage and supporting a family, it won’t get you very far.
If you have a life insurance policy, even one through your job, that’s great – but understand that it might not be enough to protect your family. To make sure they can maintain a good standard of living, you might need more – possibly a lot more.
Remember to increase coverage as your needs change.
Let’s say you decide $250,000 is enough coverage. Then you have more kids. Is $250,000 still enough? Probably not.
As your income and expenses change, your life insurance needs also change. If it’s been a while since you looked at your policy, now is a good time to think about whether you need to increase your limits. It’s especially important to reexamine coverage amounts after a major change in your life, like getting a new job, buying a house, getting married or having a baby.
Don’t forget about non-earners.
A stay-at-home mom or dad doesn’t earn a paycheck, but they still need coverage. Funeral expenses and medical debt can deplete savings quickly. More than that, a surviving spouse might need to start paying for child care, and that doesn’t come cheap. Life insurance can help, but only if you get coverage for both parents.
Start with your income.
To calculate how much life insurance you need, you can start with your income and multiply it by the number of years you want to be able to replace.
Let’s say you earn $40,000 a year.
- One rule of thumb urges people to have coverage that’s 10 times their annual income. This means that you’ll need at least $400,000 in coverage.
- Some people want to replace their income until their children are grown. If your youngest child is three years old, you might want coverage for at least 15 years. This means you’ll need $600,000 in coverage.
- Some people want to replace their income until they would have retired. If you’re 35 years old, you will turn 65 in 30 years. This means you’ll need $1,200,000 in coverage.
Add up your expenses.
In addition to replacing income, you should also think about your expenses. Does your life insurance policy provide enough coverage for the following?
- Your mortgage
- Your student loans
- Medical bills
- Your car loans, credit cards, and other debts
- Your children’s future college expenses
- Funeral expenses
Let’s say you earn $40,000 a year and want enough coverage to replace 10 years. As we’ve already calculated, that comes to $400,000. But let’s say you also want to put two children through college (about $200,000), pay for funeral expenses (about $10,000), and pay off a mortgage and other debt (about $300,000). Now, you’re looking at $910,000 – almost a million.
Decide how much you need.
It’s hard to pinpoint exactly how much life insurance a family needs, but by seeing how much income you want to replace and adding up the expenses you need to pay off, you can arrive at a good estimate. If you’re like many people, you might find that your current policy is not enough.
Need life insurance guidance? PTT Insurance can help. Contact us to learn more.