How Much Life Insurance Do You Need? Three Things To Consider
A search for a life insurance policy often brings about a common question — how much life insurance is necessary? If you are looking for a set figure, do not be too wishful; there is not one. How much life insurance is necessary is based largely on each individual's life and their affairs. Although you may not be able to pinpoint a specific amount, there are some factors that you can use to help point you in the right direction.
The age of the family you want to protect is a very important purchase consideration. As a general rule, the younger the age of your family, the more insurance you need. Consider a family with 3 children, all under the age of 5, for example. If one parent were to pass while the children were still young, the other parent would be left to cover the cost of housing, education expenses, and other costs, all on their own.
To minimize stress on the other parent and ensure the children do not have to experience a major life change, it would be wise to purchase a larger insurance policy. For someone with older children, the stakes might not be as high.
Spouse's Financial Contribution
If you are married, you need to sit down with your spouse and analyze both of your incomes. Whichever of you is the larger contributor should typically also carry the larger policy. For example, if the husband earned $25,000 a year, and the wife earned $125,000, if she were to pass before him, the absence of her income would have a considerable effect.
In this instance, it is important to ensure that they have an insurance policy that will not leave one spouse in a tough financial situation in the immediate, after the other spouse's passing.
Debts and Liabilities
Even more important than the above factors are your debts and liabilities, particularly those that you share with your spouse. For example, consider a couple with a mortgage, two vehicles, and timeshare account that they are listed as joint owners on.
If one spouse were to pass, the remaining spouse would be left to cover the cost of these expenses on their own. For this reason, a sizeable insurance policy would be necessary to help pay off these debts. On the other hand, a couple with little debt might not have the same concern.
If you need additional assistance determining how much life insurance you need to secure, an agent will be more than happy to aid you with this process.