Determining how much life insurance you need can be daunting—in large part because a policy is meant to benefit your loved ones after you die. If you pass away unexpectedly, you want to be sure that your family will be taken care of. In order to do that, it requires that you calculate how much life insurance you need.
A life insurance policy provides a cash payout when the policyholder passes away. While life insurance funds can be directed almost anywhere, policies are typically geared toward providing families financial support in the event of an unexpected or otherwise untimely death.
However, people buy life insurance for a great many reasons. Often, they wish to provide:
- Assistance with funeral or retirement expenses
- A supplement to a partner’s retirement income
- A replacement for lost wages or other income
- A college fund or trust for children
People who have never married and do not have beneficiaries sometimes buy life insurance, too, especially if they are passionate about a cause and want to leave a gift to a preferred charity.
Deciding How Much Coverage You Need
Nobody can tell you how much life insurance you should purchase without knowing your personal finances and your family situation. When making this decision, you should consider:
- Your income and how its loss would affect your family if you were to pass away
- How much money your family would need to maintain their standard of living in your absence
- How much debt you have and whether a life insurance policy can pay it off
Financial planning experts often recommend that people purchase a policy that insures 10-15x their annual income.
When You Need to Reconsider Your Coverages
Life is full of surprises—some good and some bad. When your life changes drastically, you may need to reconsider your life insurance policy, its coverages, and its intended beneficiaries.
You should revisit your life insurance plan if:
- You get a new job that pays significantly more or less than your last
- You get married or divorced
- You have a child or step-children
- You are diagnosed with a chronic illness or develop a debilitating condition.
How Life Insurance Fits Into Your Estate Plan
Ideally, your life insurance policy should be one part of a bigger, more comprehensive estate plan. An estate planning attorney can help you perform an intensive review of your existing estate plan or create a new one. This might mean re-evaluating your life insurance coverages or altering your beneficiary designations to ensure compliance with the conditions of your will or trust.
Contact Us Today
If you need help determining how much life insurance you need or balancing your policy with your estate plan, send The Law Firm of Kavesh, Minor & Otis, Inc. a message today to schedule your initial consultation.