How Much Life Insurance Do I Need_

How Much Life Insurance Do I Need?

Purchasing the correct amount of Life Insurance can sometimes be a difficult decision. There are three variables that you must take into consideration. How much do you want? How much do you need? How much can you afford? Usually, the answers to all three questions are different.

Personally, I would love to leave my beneficiaries a million dollar Life Insurance policy, but realistically, I may not be able to afford it right now. So, the question you have to ask yourself is somewhere between, how much do I need, and how much can I afford?

For the purposes of this article, I am going to use the example of a family of four; two parents, with two young children. Most young families carry a debt load that consists of a mortgage, car payment, line of credit, maybe some credit card debt, and usually at least one student loan payment. Let's say the mortgage is $200,000, the balance on the car is $20,000, maybe $2,000 on the line of credit, $2,000 on the credit card, and an outstanding balance of $16,000 on the student loan(s). This adds up to $240,000 in total debt. If your death happened prematurely, you probably like most others, would not want to leave your spouse the burden of paying off this debt. Therefore, you probably should consider a minimum of $250,000 in some Term Life Insurance.

Have you ever given any thought to a readjustment fund? Let's say, either you or your spouse died prematurely. What is the likelihood of the remaining spouse being able to immediately return to work?

Probably not that good. There are big adjustments that would have to be made. If one of you had been a stay at home parent, who would now look after the children? How easy would it be to help the kids adjust to the loss of a parent, if the remaining parent had to go right back to work? What if you both were killed? Who would to raise your children and who could afford to absorb that cost? These are some very important questions that need answers. A lot of these questions are beyond the scope of this article. This discussion will only focus on your financial concerns.

Let's say you earn $40,000 per year, and your spouse, $30,000. So, if you died, would five years of readjustment be sufficient for your spouse? Hard to say. Every individual deals very differently with death. Let's use a five year readjustment period as an example. Multiplied by the annual income of the deceased spouse, another $200,000 of Life Insurance coverage would be required. This is in addition to the $250,000 required to take care of any outstanding debts.

The best and least expensive way to address the liquidity requirements is with affordable Term Life Insurance coverage. As an example, if each parent were 35 years old, they could each be covered for $500,000, for a total cost of less than $50 per month. That's less than you spend on a cup of coffee and a muffin a day. Wouldn't you give that up easily to have the comfort of knowing your family is financially secure? over 50 life insurance