Many people shopping for life insurance are asking themselves how much they should have.
The answer can be very simple as well as very complex and will vary by individual.
I am going to breakdown how much you personally should need with a few simple steps.
Typically when figuring out how much insurance one needs a flow chart would come into play.
At the top the question would be, are there any other people dependent on your income? If you answered no then you would go to the question of is there someone you would like to assign as a beneficiary to pay for your funeral services or anyone that is in need of a death benefit should you die.
For someone like this you are probably looking at $25,000 to $50,000 in life insurance.
For those that have a family, or a spouse dependent on their income to maintain a certain lifestyle the answer is much more.
Many people are under insured when it comes to life insurance.
Do not make the same mistakes as other people from the past.
There are several different kinds of life insurance but we will not get into that topic in this article.
For more information please view "What Kind of Life Insurance Should I Buy?" with a link provided in the author signature.
Now as far as how much life insurance one needs you need to add up all your debt.
Mortgage, student loans, vehicles, etc.
Lets say that equals $225,000.
Now you take your age and years until retirement if you didn't have any debt.
Lets say you are 45 with 20 years until retirement but being debt free you could retire in 10 years.
You are making approximately $50,000 per year year in this example with 10 years left to work.
That is $500,000 plus your $225,000 to pay off your debt.
Add in an additional $15,000 in burial costs and you are at a total of $740,000 in life insurance needs.
Now if you have children that need to go to college or other variables you would add them in now, but for simplicity sake we will say we are done with the addition math.
Now to know how much life insurance you need you will have to do some subtraction from that number.
Your raises each year might equal a whopping 3% of your income which would keep you up to speed with inflation.
But if your survivors where to receive $740,000 tomorrow from your death they would see probably closer to a 6% or 8$ return on the money that isn't being used to pay off debt.
This brings the magic number down to approximately $650,000.
There is compounding returns involved and the math is too complex to get into.
You probably have some money in retirement already which will make up for the minor fluctuations in inflation.
For a much simpler rule of thumb you could also say you need enough to pay off your debt plus 7 years of income.
This math would take you closer to a $600,000 policy.
There are going to be several other variables to consider based on your personal financial situation so please visit a licensed professional for consultation on how much life insurance you need.
The answer can be very simple as well as very complex and will vary by individual.
I am going to breakdown how much you personally should need with a few simple steps.
Typically when figuring out how much insurance one needs a flow chart would come into play.
At the top the question would be, are there any other people dependent on your income? If you answered no then you would go to the question of is there someone you would like to assign as a beneficiary to pay for your funeral services or anyone that is in need of a death benefit should you die.
For someone like this you are probably looking at $25,000 to $50,000 in life insurance.
For those that have a family, or a spouse dependent on their income to maintain a certain lifestyle the answer is much more.
Many people are under insured when it comes to life insurance.
Do not make the same mistakes as other people from the past.
There are several different kinds of life insurance but we will not get into that topic in this article.
For more information please view "What Kind of Life Insurance Should I Buy?" with a link provided in the author signature.
Now as far as how much life insurance one needs you need to add up all your debt.
Mortgage, student loans, vehicles, etc.
Lets say that equals $225,000.
Now you take your age and years until retirement if you didn't have any debt.
Lets say you are 45 with 20 years until retirement but being debt free you could retire in 10 years.
You are making approximately $50,000 per year year in this example with 10 years left to work.
That is $500,000 plus your $225,000 to pay off your debt.
Add in an additional $15,000 in burial costs and you are at a total of $740,000 in life insurance needs.
Now if you have children that need to go to college or other variables you would add them in now, but for simplicity sake we will say we are done with the addition math.
Now to know how much life insurance you need you will have to do some subtraction from that number.
Your raises each year might equal a whopping 3% of your income which would keep you up to speed with inflation.
But if your survivors where to receive $740,000 tomorrow from your death they would see probably closer to a 6% or 8$ return on the money that isn't being used to pay off debt.
This brings the magic number down to approximately $650,000.
There is compounding returns involved and the math is too complex to get into.
You probably have some money in retirement already which will make up for the minor fluctuations in inflation.
For a much simpler rule of thumb you could also say you need enough to pay off your debt plus 7 years of income.
This math would take you closer to a $600,000 policy.
There are going to be several other variables to consider based on your personal financial situation so please visit a licensed professional for consultation on how much life insurance you need.
