Just how much life insurance do you need? Unfortunately, there is no simple answer to this question. Some people need a policy that pays enough to cover their funeral expenses, while others need enough to pay off their mortgage, support their family, and keep a business running. You need a basic guide to help you determine the amount of life insurance you should cover.
How Much Debt Do You Have?
Look at your finances and consider the debt that you have. If you died, your family would have to pay off your debt and you don't want to leave them with thousands of dollars to clear. Debt includes credit cards, car loans, mortgages and even student loans. Total it all up for the start of the amount of insurance you'll need.
You'll want to include any joint debts, especially if you pay towards those debts. Your spouse may be working, but does he/she have enough money to clear the mortgage and put food on the table each month?
What Are Your Monthly Outgoings?
Now, think about the amount that you spend each month. Some of the outgoings will disappear with your debt, such as personal magazine subscriptions and private spending. However, there are others that your family members will have to cover. Use your bank statements to cover your total cost of outgoings each month.
How Much Do You Make?
If you currently have enough money with your income alone, it's worth considering the amount that you make each year. Then multiply that by the amount of time your family will likely have left to support themselves. This is just a rough guide, remember.
You can also consider the idea that they will invest the life insurance payout and take a small percentage each year. Make sure that small percentage per year matches the amount of your yearly wage.
Do You Save Monthly?
If the answer is yes, this is good news. By saving, you'll have more money for your family to rely on. This could help you keep the amount of life insurance down, so your premiums are kept to a minimum. You will need to keep your monthly savings accumulating to be able to benefit from this little pot of money. Think about any amounts that you will need to spend in emergencies.
It's not a simple answer of the amount you'll need with your life insurance policy. You'll need to find an amount that will protect your family, whether they have a mortgage to pay or need to clear your debts.