5 minute read
Protecting Your Loved Ones
By Hal Landers
Life insurance is a powerful tool. Buying it now ensures you take care of your loved ones and offers peace of mind for the family. If you have people who depend on you, life insurance is an essential and critical part of a comprehensive financial plan that provides protection and security for your loved ones.
The intent of life insurance is a death benefit that provides for your family's needs and covers expenses. This could mean replacing your income or paying off debt if you pass away, or a policy simply to cover final expenses and burial costs. Every situation is different, but choosing the right amount is crucial to safeguard financial security for those you care about and can help ensure there is not a drastic lifestyle change should something happen.
YOUR SAVINGS, DEBTS, INCOME, AND FAMILY SITUATION ALL PLAY ROLES IN CALCULATING HOW MUCH LIFE INSURANCE A PERSON NEEDS.
One of the first questions you should ask yourself when buying life insurance is, “How much coverage do I need?” Several methods exist to calculate the right amount and it is important to consider all factors during the process to better assess your family's long-term needs. Your savings, debts, income, and family situation all play roles in calculating how much life insurance a person needs.
MULTIPLY YOUR INCOME BY 10 is a simple and widely used guideline to estimate the amount of life insurance coverage needed. This rule suggests that you should aim to have a life insurance policy worth approximately ten times your annual income. Here's why and how it works:
Income Replacement: The primary purpose of this rule is to replace the lost income your family would face if you were no longer around. By multiplying your annual income by 10, you ensure your family has enough funds to cover living expenses for about ten years, giving them time to adjust and find alternative sources of income if needed.
Simplicity: This rule is easy to understand, making it accessible for individuals who might find more complex financial planning methods daunting.
Baseline Coverage: It provides a rough estimate and a baseline for further calculations. While it doesn't take into account all individual circumstances, it offers a starting point for determining an adequate coverage amount.
Keep in mind this rule is helpful as a quick estimate. However, it may not be suitable for everyone as it does not consider specific factors such as debts and liabilities, number and age of dependents, future expenses, savings, assets, or spousal income.
For a more accurate and personalized assessment, it's advisable to consider other methods alongside the Multiply by 10 Rule, such as the DIME method, a more detailed approach to determining the appropriate amount of life insurance coverage needed. DIME stands for Debt, Income, Mortgage, and Education, representing the key financial obligations to consider. By adding together these four components, one can get a comprehensive estimate of the life insurance coverage needed. Beyond these amounts, think about funeral expenses, the type of policy, Term Life versus Permanent Life, and any riders to customize a policy.
Calculating Your Coverage
Below are financial obligations you may want to take into consideration for calculating your policy coverage:
Income replacement. Multiply the salary you want to replace for the number of years you want to replace it. You’ll want this income replacement to cover current and future expenses.
Mortgage. Include the mortgage balance so your family can stay in their home without fear of losing it.
Other large debts. If your family would struggle with other large debts if you pass away unexpectedly then add those amounts in.
Children's college tuition. Calculate the tuition money to ensure your children can pay for college.
Existing life insurance. Subtract any other life insurance that you already have. Be careful about relying on supplemental life insurance through work. It doesn’t always go with you if you change jobs.
Savings. Subtract any savings your family would use to pay expenses.
Remember, these general rules and formulas are just guidelines. You may have additional assets or obligations that need consideration when evaluating life insurance. Ultimately, the best coverage amount is the one that gives you the most reassurance your family will be well taken care of, even if you are not around to provide for them.
For more information on protecting your loved ones, give Landers Insurance Agency a call at (931) 380-2003 or visit them at landersinsuranceagency.com. They will help make the process easy and secure the best possible protection for your family giving you peace of mind!
HAL LANDERS is the owner of Landers Insurance Agency LLC. His agency has been providing great rates and service for over 20 years in Columbia and throughout Tennessee. As a native of Maury County, Landers always knew Columbia was where he wanted to establish his agency. Landers Insurance Agency has been awarded numerous company production awards in personal, commercial, and life insurance including a finalist for Best Insurance Agency in Maury County.
