The most important part of buying life insurance is determining how much you need. Since everyone’s financial circumstances and goals are different, there is no rule of thumb to tell you how much to buy.
But do you really need $250,000, $500,000, $1 million or more? Sounds like a lot of money, but imagine if one of those amounts had to pay for a funeral, retire credit card balances and other debts, and support your loved ones for many years to come. Would it be enough? How would you know?
To start, estimate what your family members would need after you’re gone to meet immediate, ongoing, and future financial obligations. Then, add up the resources your surviving family members could draw on to support themselves. These would include things like a spouse’s income, accumulated savings, life insurance you may already own, etc. The difference between the two is your need for additional life insurance.
This mathematical equation may seem simple enough, but coming up with all the inputs can get tricky. Plus, you’ll need to factor in the effects of inflation and assumptions about how much your investments will earn over the long run.
Fortunately, there are plenty of resources you can turn to for assistance. A first step would be meeting with a qualified insurance professional, who can conduct a thorough analysis of your needs, and then help you determine the right amount and type of life insurance to protect the ones you love.
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