Life insurance is the best way to protect you & your family from economic crisis as a result of death or accident. The insurance company is obliged to pay the recipient of your choice, a stipulated amount of money when you die. The amount offered is the return payment of the timely payment of premiums that you make when you are living.
The basic question that arises in one’s mind is that what is the exact amount of life insurance one needs to apply for.
Now the amount of life insurance you need depends on certain factors that you must consider prior to determining. Given below are some important points that you must consider prior to answering the question- how much life insurance do I need.
- The amount of money your family can afford to pay off your debts such as mortgage loan, rent or other bills in case you die.
- The amount of debt you currently incur, including all your credit card balances, car loans, student loans, personal loans etc.
- The amount of annual income your sad departure would eliminate from your household.
- The cost of funeral.
- Your desire to leave behind a charity fund in your name.
- The number of special family members you would like to receive a financial gift.
- The amount of money your spouse requires to care for a family member with special requirements or your children.
- The amount you desire to leave behind for the educational expenses of your child.
In addition to considering the above-mentioned points, you must also ask the following questions to yourself & answer them honestly prior to actually determining the amount of life insurance.
- Should I spare my loved ones for the funeral cost?
- Do I have outstanding debts?
- Am I extremely worried that my wife will not be able to pay off the mortgage or credit card debts?
- How many dependants I have who count on my income?
- How would my child bear the college expenses?
- How would I make both ends meet once I retire?
- How would I be able to earn in case I get physically disabled due to an accident?
Calculate the amount of money you want to leave behind & the money you currently possess along with your other assets including saving accounts, stocks, 401K, CDs, bonds, pension plans & retirement plans. Now subtract the amount of the assets you possess from the money you want to leave behind & decide the amount of life insurance you need to purchase.