So, you’ve reached the point in your adult life that you’ve decided that you need life insurance! There are other people who now depend on your income! But, how much life insurance do you need? Here is a formula to help you determine how much you might need, and if you should purchase term or permanent products.
L – Loan Repayments: Calculate the amount of loans you have (home loan, auto loan, credit cards, student loans.) Also consider the amount of time left on the loans. Use this total to determine an amount of term life insurance you’d need and use the time left on the loans to determine the length of the term insurance policy.
I – Income Replacement: If your spouse no longer had your income, you’d want to be able to continue to have that income for a period of time in the event of your untimely death. Take your annual income times 5 to give you a good starting point for an amount of insurance to provide them. Next, determine how much time you have until retirement. If you plan to retire in 20 years, set up a 20 year term plan.
F – Final Expenses: The cost of a funeral can range from $15,000 – $25,000. It’s a good idea to set up a permanent life insurance product with this face amount so that your family would have enough money to pay for final expenses.
E – Education: If you want to be certain that higher education costs are paid for your children, calculate the estimate cost. Use this dollar amount as the face amount for the life insurance policy. Next, consider how many years it will be until your children are completed with their higher education. If you think that in 10 years, all of your children will be completed, purchase a 10 year term plan.
It’s important to take care of your loved ones in the event of your untimely death. And, as you can see there are ways to purchase several different life insurance policies to keep the cost as low as possible while at the same time protecting your loved ones.