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How Much Life Insurance do you Need?

Deciding How Much Life Insurance You Need

Are you wondering how much life insurance you need?  In order to make a decision about the right amount of life insurance, it is important to consider the reasons you are purchasing a policy.  Some people purchase life insurance to make sure their family’s needs are provided for, while others seek insurance coverage to protect their businesses and business partners.

Family Protection Considerations

If your primary reason in seeking insurance coverage is to make sure your family won’t have to struggle financially if you pass away, you need to think about how much money they’ll need to live comfortably without you.  It will be important to get enough insurance to make up for the loss of your salary for the rest of your working years. For example, if you have young children, child care expenses are likely to increase if one of the parents is no longer living.

Business Considerations

Business owners, on the other hand, often purchase key person life insurance to protect their companies and business partners from the financial loss of the death of key people Business Partners Reviewing Life Insurance Options(which often is an owner). Also, life insurance is used to fund the purchase of the business interest of a deceased owner instead of having to pay cash or take on the relatives of the deceased owner as partners.  This helps the heirs as well since they get fair value for the business without having to be concerned about the future of the business.  The remaining owner(s) can then move on with the business without concern. 

This can be combined with key person life insurance on the owner to help offset the expenses of continuing to operate in the absence of one of the partners.  To determine how much buy-sell life insurance is sufficient, you’ll need to consider what the fair market value of the stock is expected to be for the foreseeable future. For the key person life insurance one needs to estimate the out of pocket costs necessary to proceed without one of the owners (or non-owner key person).

Different businesses will need different amounts of coverage. When trying to determine how much life insurance is needed for business owners, it’s necessary to stop and think about how the proceeds of the policy will be used.

Questions to Ask Yourself

How much life insurance do I need?” That’s a question that many people ask when they begin thinking about purchasing a life insurance policy. Many factors impact the amount of insurance you should buy. Make sure to ask yourself all the relevant questions before making a final decision.

Some of the factors that need to be considered when determining how much life insurance is enough include:

  • How much money will your loved ones need to live comfortably if you pass away?
  • Do you own a business? If so, what financial impact will your passing have on the company and your co-owners?
  • Does your family have access to the funds needed to pay burial expenses?
  • Is your family’s home paid for, or is there still a mortgage on the property?
  • Will your family need financial assistance with estate taxes?
  • How much money can you expect to leave to your loved ones from your retirement plan or other investments?
  • Do your life insurance proceeds need to provide enough money to pay for college for your children?

Balancing Coverage with Cost

Many people postpone purchasing life insurance because they think it’s too expensive. Many factors impact the cost of life insurance, and financial protection for your family’s future doesn’t have to cost a fortune. When you take the time to get life insurance quotes, you’ll be able to understand that variables that allow you to balance life insurance coverage with premium costs. You might be surprised to find out just how affordable life insurance protection really is.

Consider Inflation When Choosing Life Insurance

When figuring out how much life insurance you might need to provide protection and peace of mind for your family, it’s important to consider the impact of inflation. It’s important to look at inflation from the perspective of how it might affect your earnings and the impact it can have on cost of living.

If you only consider how much money you earn right now and your family’s current expenses, you might not make the best possible decision about life insurance coverage. Over time, your rate of pay is likely to increase from either performance or merit raises, as well as through cost of living adjustments. At the same time, the cost of consumer goods is likely to increase in keeping with the rate of inflation. When purchasing life insurance, you need to think about how much coverage you need to protect your family’s living standards. Twenty years from now, it’s likely that your loved ones will need more money to live comfortably than they’ll need tomorrow, or even five years from now. That’s why it’s important to consider inflation when purchasing life insurance.

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    • Intramark Insurance Services, Inc., Insurance Services, Glendale, CA

    • Intramark Insurance Services, Inc.