Determining Life Insurance Needs

There is no one answer to how much life insurance coverage one needs. It is different for everyone. It is determined by your life, the lives of your loved ones, your investments, and your monetary obligations. It is designed to provide financial support, after your death, to your loved ones immediately and in the years to come.

To provide the right amount of insurance you need to do your best to determine the income and expenses your loved ones would have if you died.

There are immediate financial demands upon the death of a loved one. Initial expenses include the significant cost of funeral expenses and burial. Final financial expenses may extend to outstanding medical bills, personal debt, credit card bills, mortgage loans, and student loan debt. The death benefit is designed to last one’s entire lifetime but must cover immediate expenses as well.

One of the primary reasons for having life insurance is to compensate for wages that you would have otherwise contributed to your household thereby ensuring that your family is provided for. Scale your life insurance coverage to match your income to maintain your family’s standard of living now and for the future. If you aren’t able to match it, adjust your insurance to match your desired annual income needs.

The amount of your assets will impact the coverage that is needed. If you don’t have assets your family may be completely reliant financially on your life insurance coverage. If you have investments and other benefits you may want to take these into account and reduce the coverage. Part of this decision may be dependent on the cost of the premiums. You don’t want your premiums to be an overwhelming expense.

Your age and that of your family’s will greatly affect how much life insurance you need. Estimate an annual long-term expense figure. Factor in their lifestyle such as food, housing, medical expenses, etc. Include education, mortgage and other expenses. When calculating future expenses factor in inflation. Estimating future expenses for your family is a critical component in determining the life insurance coverage you require.

Your life insurance selection will have long standing implications for you and possibly your family. When considering life insurance consult with your financial advisor. Contact your insurance agent to learn about available options.

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Freya Allen Shoffner, Esq.
Shoffner & Associates
Counselors to Small Business and Families.

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