There are so many financial pressures on people today that thinking about insurance premiums may be the last thing on our mind as it’s just another outgoing. However, it’s those ‘pressures’ and the uncertainty they create, that are the very reason it’s wise to consider life insurance.
Life insurance is a way of helping to provide for those you love in the event that you or your partner pass away. Unlike the economy, life insurance can provide a measure of financial certainty for the future.
The question we will consider in this article is how much life insurance do you need? This is an important question because you’re paying for that insurance now, so you don’t want more than is necessary, while at the same time, you don’t want it to come up short.
Guiding Financial Principle
To accurately assess how much insurance is needed, it’s important to understand more clearly what is the purpose of life insurance. It’s not just a bag of money for your loved ones when you die. A savings account will achieve something similar.
No, a life insurance policy is a financial product designed to cover the financial gap between all of your assets and your long-term financial obligations. Those obligations could include paying for your children’s education etc. It might also include any debt that you have acquired and are steadily paying off.
Without analyzing your existing circumstances and financial situation it is impossible to put an exact figure on your life insurance. However, you can calculate a ballpark figure that’s a minimum of what you should be thinking about. You can do that as follows:
1. Multiply your income by a factor of 10
2. Multiply each child by $100,000 (eduction costs)
3. Add up all of your existing debt (including your mortgage)
These 3 values add together so that you at least know what you should be aiming for. Of course, there are several reasons why this figure may vary. To help be more precise, you can use an online insurance calculator to further approximate your needs.
Don’t Forget Funeral Costs
Funeral costs can be expensive and if they’re not planned for they will present an early financial burden on your family. You’re wise to include those costs into your insurance policy.
To precisely calculate your financial needs while offsetting what you can realistically afford requires professional input. Check out this website as a starting point in getting some professional advice at http://gesselins.com.
Understand How Much Life Insurance You Need
In this article, you have read about the basic financial principles that underlie the calculations of how much life insurance people should plan for. It’s important to remember that insurance is a financial product that someone will want to sell you.
So the better informed you are with the principles discussed in this article, the more likely you’re going to make a good decision. Check out other practical articles on our site that will help you make sound financial decisions.