Shockingly, most people feel that they are not financially prepared for the death of a family member. In fact, less than half of those earning a moderate salary in the United States have a life insurance policy. If you don’t have life insurance or don’t think you have enough, you’re likely wondering how much is enough to take care of your family once you’re gone. While many experts say that you should have a policy that’s equal to up to 10 times your annual salary, that’s a blanket figure and not the right number for many families. There are several things that affect how much life insurance you need. Following are three things you should consider before purchasing your policy.
If you have young children that will need to be taken care of, put through college, and set on the right financial path after you’re gone, you will want to carry more life insurance for now. Once they grow up and have families of their own, you can scale back some. Be sure to calculate education expenses and other expenses that your children may have and add it to the amount of money your spouse will need to raise them.
You should consider your annual income in order to calculate the right amount of coverage, but you shouldn’t rely on it completely. It’s likely that you won’t have to replace all of your income with an insurance policy due to other pension plans, your spouse’s income, federal benefits and so on. For most people, the amount needed works out to approximately 50 percent of what you expect to earn before you retire. As you can imagine, your current age can affect this number dramatically.
If you carry a lot of debt, you may want to consider purchasing additional life insurance so your family can pay off the debt if you were to pass away. If you don’t consider debt when you purchase your policy, your family may have to use part or all of your insurance to pay it off. At the least, debt will lower the amount of money they have to live on.
Since there are so many variables when it comes to selecting the right amount of life insurance to fit your needs, it’s a good idea to talk to an expert. The last thing you want is for your family to realize they don’t have enough money to live comfortably after you’re gone.