Life Insurance Needs

How to Determine Your Life Insurance Needs

Deciding how much life insurance coverage you need can be a real challenge, especially if you have never bought life insurance before. At times it seems life insurance is deliberately confusing, and it can be very difficult to determine how much coverage you need, or even whether or not you need coverage at all.

One of the most important things to consider is whether you need life insurance coverage at all. Life insurance is designed to protect your loved ones in the event of your death, so if you are not married and have no children you may not need life insurance coverage at all.

Just keep in mind that you need to protect yourself as your circumstances change. When you do marry and start a family, you need to readdress your life insurance needs and determine exactly what you need to do to cover the needs of your loved ones.

Once you have determined that you need life insurance coverage, it is important to then determine exactly how much coverage you need, and which type of life insurance is best for your needs. Keep in mind that term life insurance is generally much less expensive than whole life, which combines a death benefit with an investment aspect. In most cases it is better to keep your life insurance and investments separate, since that strategy is generally the most cost-effective solution.

When determining how much term life insurance you need, it is a good idea to consider the financial needs of your family. If you are the sole breadwinner in the family, you will need to purchase enough term life insurance to replace your income. The amount of money needed to replace a middle-class income can be surprisingly large. For instance, you would need roughly one million dollars in life insurance coverage to generate $40,000 in before-tax income, assuming a standard 4 percent withdrawal rate each year.

Even if you and your spouse both work, you may still want to purchase enough life insurance coverage to replace your income, especially if it takes the combined income for you and your spouse to meet the monthly bills. At the same time, your spouse should have a similar amount of life insurance in place.

While buying that much life insurance can be a daunting task, term life insurance can be surprisingly affordable, especially for young healthy people. If you are young and in relatively good health, you may be able to afford the life insurance coverage you need without adversely impacting your family finances.

One of the best ways to get the insurance coverage you need at an affordable price is to shop around as much as possible. There are many different companies in the life insurance industry, and they all must compete with one another for customers. That can mean lower costs for you, without sacrificing quality coverage or giving up the protection you and your loved ones need.