How much life insurance you need is one question that always pops up when you decide to buy a life insurance policy. There are two things you need to consider when deciding on how much life insurance you really need – family protection and business. If your are buying life insurance to make sure your family won’t have to struggle financially if you pass away, you must consider how much money they’ll need to live comfortably when you are gone. Your insurance must be sufficient to make up for the loss of your salary for the rest of your working years. If you are purchasing life insurance for your business, i.e. key person life insurance, you must consider what the fair market value of the stock is expected to be for the foreseeable future.
Ask yourself some questions:
• How much money will your loved ones need to live comfortably if you pass away?
• Do you own a business? If so, what financial impact will your passing have on the company and your co-owners?
• Does your family have access to the funds needed to pay burial expenses?
• Is your family’s home paid for, or is there still a mortgage on the property?
• Will your family need financial assistance with estate taxes?
• How much money can you expect to leave to your loved ones from your retirement plan or other investments?
• Do your life insurance proceeds need to provide enough money to pay for college for your children?
Another way to determine how much life insurance you need is to use a life insurance calculator. There are many sites which provide free life insurance calculators. There is a simple method of determining how much life insurance you need by using multiple of income. It involves multiplying your annual income by a multiplier, based on your age when you are buying the policy. It works like this. If you are 25 years old, then you will need life insurance valued at approximately 25 times your annual income. 35 years old? You will need life insurance that covers about 20 times your yearly earnings. If you are 45 years old, you will need life insurance worth approximately 15 times your annual income. A 55 year old will need a life insurance policy for an amount about 10 times the annual earnings plus any estate tax liability that may be due.
