How to Choose Life Insurance
Decide whether or not you need life insurance., Estimate your family’s living expenses., Add up your debt balance., Consider your children's education., Add up the current financial resources., Calculate how much life insurance you need., Use an...
Step-by-Step Guide
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Step 1: Decide whether or not you need life insurance.
If you have anyone who relies upon you financially, then you should purchase a life insurance policy.
You may be able to purchase a life insurance policy through your work.
But the coverage may not be high enough, and it likely only remains in place while you are employed.
Depending on the amount of coverage you need, you may need to purchase an additional life insurance policy outside of work.If you are single with no dependents, you probably don’t need life insurance.
Similarly, if you have recently gotten married, unless you own any property, you may not need life insurance.
However, some people in this case purchase a small policy.
This would allow loved ones to cover their final expenses such as burial and funeral expenses. -
Step 2: Estimate your family’s living expenses.
If you are responsible for providing some or all of your family's living expenses, you will want to buy insurance to cover this amount so that your family can live securely after your passing.
Add up your take-home income over a year and then multiply that number out for a number of years to determine an insurance amount to purchase.
This time period is not set in stone and will depend on how much insurance coverage you want to purchase and how much will make you feel that your family could live safely in the event of your passing.
Another consideration is the cost of child care.
If you pass, a stay-at-home spouse may be required to work, which would also require them to pay for child care for your children.
Add in this expense to your total amount., Determine how much money it would take to keep your house, such as the amount you still owe on your mortgage.
Tally up any unpaid debt in addition to your mortgage.
Your family will be responsible for your car loans, student loans and credit card debt.
Add in your final expenses.
Your family will have to pay your medical bills and funeral expenses, and they may need to pay estate taxes.For example, suppose you owe $150,000 on your mortgage, and you have other consumer debt that adds up to $20,000.
Estimate that your final expenses will cost $5,000.
This adds up to $175,000 ($150,000+$20,000+$5,000=$175,000){\displaystyle (\$150,000+\$20,000+\$5,000=\$175,000)}. , You want to leave your family with enough money to cover future financial obligations.
For example, your spouse may want to send your children to college.
Estimate how much would be needed for tuition, books, fees and room and board.
If you pass away, this might not be possible without your income.
A life insurance policy can make it a reality.For example, if you want your children to be able to attend an in-state, four-year public school, you will need to have at least $130,000 per child.If you have three children, you would need $390,000. , Tally up any financial resources still available to your family after your death.
For example, your spouse may have an income.
You may have savings or retirement accounts.
In addition, you may have begun saving for college.
Also, you might have other life insurance policies.
Add up the balances in all of your accounts.For example, suppose you have $75,000 saved in your retirement accounts and $10,000 saved for college.
Also, you have another life insurance policy through work that’s worth $50,000.
That means you already have $135,000 in financial resources ($75,000+$10,000+$50,000=$135,000){\displaystyle (\$75,000+\$10,000+\$50,000=\$135,000)}. , Add up all of the expenses you want to cover, including paying off your house, paying off your debt and sending your children to college.
Add up all of your financial resources, including your retirement savings, college savings and other life insurance policies.
Subtract the value of your financial resources from the total expenses you want to cover.
This tells you how much life insurance you need.
In the above example, you want to cover $175,000 in debt and $390,000 in college tuition.
This totals up to $565,000.
You already have $135,000 in other financial resources.
You need to purchase $430,000 in life insurance ($565,000−$135,000=$430,000){\displaystyle (\$565,000-\$135,000=\$430,000)}. , Many life insurance companies have online forms that will help you figure out how much life insurance you need.
You enter in how much outstanding debt you have and how many children you need to send to college.
You also input information about the total annual income your family would need and any income you expect your spouse to earn after you die.
Once you submit the information, the calculator analyses your situation and tells you how much life insurance you need to purchase.
From there, you would contact an agent and discuss the life insurance products they have available to cover your needs., If you have purchased a term life insurance policy, it has likely expired by the time you reach retirement age.
At this point, the cost of purchasing a new life insurance policy would be prohibitively high because of your age.
If you have planned well for retirement, however, you shouldn’t need a life insurance policy.
Your retirement accounts should be able to provide for your loved ones in the event of your death.
Similarly, if you have a cash-value policy, you shouldn’t need that anymore either.
Cash out the policy and add the cash value to your retirement accounts. -
Step 3: Add up your debt balance.
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Step 4: Consider your children's education.
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Step 5: Add up the current financial resources.
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Step 6: Calculate how much life insurance you need.
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Step 7: Use an online life insurance calculator.
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Step 8: Re-evaluate your insurance needs when you reach retirement age.
Detailed Guide
If you have anyone who relies upon you financially, then you should purchase a life insurance policy.
You may be able to purchase a life insurance policy through your work.
But the coverage may not be high enough, and it likely only remains in place while you are employed.
Depending on the amount of coverage you need, you may need to purchase an additional life insurance policy outside of work.If you are single with no dependents, you probably don’t need life insurance.
Similarly, if you have recently gotten married, unless you own any property, you may not need life insurance.
However, some people in this case purchase a small policy.
This would allow loved ones to cover their final expenses such as burial and funeral expenses.
If you are responsible for providing some or all of your family's living expenses, you will want to buy insurance to cover this amount so that your family can live securely after your passing.
Add up your take-home income over a year and then multiply that number out for a number of years to determine an insurance amount to purchase.
This time period is not set in stone and will depend on how much insurance coverage you want to purchase and how much will make you feel that your family could live safely in the event of your passing.
Another consideration is the cost of child care.
If you pass, a stay-at-home spouse may be required to work, which would also require them to pay for child care for your children.
Add in this expense to your total amount., Determine how much money it would take to keep your house, such as the amount you still owe on your mortgage.
Tally up any unpaid debt in addition to your mortgage.
Your family will be responsible for your car loans, student loans and credit card debt.
Add in your final expenses.
Your family will have to pay your medical bills and funeral expenses, and they may need to pay estate taxes.For example, suppose you owe $150,000 on your mortgage, and you have other consumer debt that adds up to $20,000.
Estimate that your final expenses will cost $5,000.
This adds up to $175,000 ($150,000+$20,000+$5,000=$175,000){\displaystyle (\$150,000+\$20,000+\$5,000=\$175,000)}. , You want to leave your family with enough money to cover future financial obligations.
For example, your spouse may want to send your children to college.
Estimate how much would be needed for tuition, books, fees and room and board.
If you pass away, this might not be possible without your income.
A life insurance policy can make it a reality.For example, if you want your children to be able to attend an in-state, four-year public school, you will need to have at least $130,000 per child.If you have three children, you would need $390,000. , Tally up any financial resources still available to your family after your death.
For example, your spouse may have an income.
You may have savings or retirement accounts.
In addition, you may have begun saving for college.
Also, you might have other life insurance policies.
Add up the balances in all of your accounts.For example, suppose you have $75,000 saved in your retirement accounts and $10,000 saved for college.
Also, you have another life insurance policy through work that’s worth $50,000.
That means you already have $135,000 in financial resources ($75,000+$10,000+$50,000=$135,000){\displaystyle (\$75,000+\$10,000+\$50,000=\$135,000)}. , Add up all of the expenses you want to cover, including paying off your house, paying off your debt and sending your children to college.
Add up all of your financial resources, including your retirement savings, college savings and other life insurance policies.
Subtract the value of your financial resources from the total expenses you want to cover.
This tells you how much life insurance you need.
In the above example, you want to cover $175,000 in debt and $390,000 in college tuition.
This totals up to $565,000.
You already have $135,000 in other financial resources.
You need to purchase $430,000 in life insurance ($565,000−$135,000=$430,000){\displaystyle (\$565,000-\$135,000=\$430,000)}. , Many life insurance companies have online forms that will help you figure out how much life insurance you need.
You enter in how much outstanding debt you have and how many children you need to send to college.
You also input information about the total annual income your family would need and any income you expect your spouse to earn after you die.
Once you submit the information, the calculator analyses your situation and tells you how much life insurance you need to purchase.
From there, you would contact an agent and discuss the life insurance products they have available to cover your needs., If you have purchased a term life insurance policy, it has likely expired by the time you reach retirement age.
At this point, the cost of purchasing a new life insurance policy would be prohibitively high because of your age.
If you have planned well for retirement, however, you shouldn’t need a life insurance policy.
Your retirement accounts should be able to provide for your loved ones in the event of your death.
Similarly, if you have a cash-value policy, you shouldn’t need that anymore either.
Cash out the policy and add the cash value to your retirement accounts.
About the Author
Carol Kelly
Dedicated to helping readers learn new skills in practical skills and beyond.
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