How Much Life Insurance Do You Really Need?
Whenever you’re asked about choosing a new life insurance policy or adding additional coverage, do you have any of the following reactions?
1. “No way. We took care of this years ago. Having some kind of life insurance policy is what you’re supposed to do.”
2. “Well, it is only a few more dollars each month… But what if we never end up using the benefits of that rider? What if I could spend that extra money on something more important now, like getting that new riding lawn mower I wanted?”
3. “ANOTHER RIDER FOR MY POLICY?! Sign me up!”
Even though there might be some similar responses when faced with a decision to upgrade what you already have, with the right guidance, you can finance a policy that has the potential to protect what is most important to you and your family, fit your needs, and get you closer to financial independence.
The most honest answer about how much life insurance you really need? It’s going to depend on you and your goals.
General rules of thumb on this topic are all around. For instance, one “rule” states that the death benefit payout of your life insurance policy should be equal to 7-10 times the amount of your annual income. But this amount alone may not account for other needs your family might face if you suddenly weren’t around anymore…
Paying off any debt you had accrued
Settling final expenses
Continuing mortgage payments (or surprise upkeep costs)
Financing a college education for your kids
Helping a spouse continue on their road to retirement
And these are just a few of the pain points that your family might face without you.
So beyond a baseline of funds necessary for your family to continue with a bit of financial security, how much life insurance you require will be up to you and what your current circumstances allow.
Source: CNN Money: “How big should my life insurance policy be?” 2017