Establishing a life insurance policy that sets your loved ones up for a secure financial future is critical for a successful financial plan. When asking yourself, "how much life insurance do I need?" it's essential to take a comprehensive look at your financial life.
As a life insurance policyholder, you will make recurring payments, known as premiums. If you pass away while the policy is active, your insurance company will pay a sum of money called a death benefit.
The death benefit goes to the beneficiaries of your policy. The death benefit will serve as your income replacement so your beneficiaries can continue paying for food, housing, and additional expenses.
Right from the start, you'll encounter two types of life insurance: term and whole life insurance.
Term life insurance lasts for a specified number of years. If you die before the term expires, then your insurer pays a set amount of money - the death benefit - to your beneficiaries.
Unlike term life insurance, whole life insurance can cover you for your whole life. Assuming you pay the policy's premium, you won't have to worry about an expired policy. However, it can cost 5 to 15 times more than term life insurance for the same death benefit.
A good way to start determining the life insurance you need is by evaluating why you are investing in it. Do you have young children? Are you married? Ensuring that your loved ones have the financial resources they need to carry on without you will likely be a top priority.
What we discussed in the previous section can also be described as your financial obligations. Along with supporting your loved ones, your financial obligations will include any debts and mortgages you are responsible for.
You can begin calculating your financial obligations by adding the amount needed to support your loved ones, commonly known as income replacement, with the amount in mortgages and debts you owe.
Once you determine the cost of your financial obligations, calculate your liquid assets. Your assets will include any savings, life insurance policies you hold, and college education funds you have for your kids.
To answer "How much life insurance do I need," take the total amount of your financial obligations and subtract your liquid assets. This will leave you with the life insurance policy you should aim for.
If you're wondering, "how much insurance life insurance do I need?" Finley Davis Financial Group can help. Not only will we find you the most competitive plans, but we'll also consider your unique financial situation every step of the way.
To get started, give us a call or contact us online today.