How Much Life Insurance Do I Need?
Determining the amount of life insurance one should purchase is relatively simple
, yet many people are either over-insured or under-insured.Life assurance was created to help dependents after the death of a loved one. If you do not have any dependents, you only need enough insurance to cover the average cost of a funeral and burial. Any expenses you have accumulated before death will be taken out of your estate. If your estate does not yield enough money to pay off your expenses, the expenses will be written off by the lenders. Your family will not be personally held responsible for any unpaid bills or expenses accumulated before death unless they are a co-signer on a loan or mortgage.
If you do have dependents, it is necessary to calculate how much money would be needed for your dependents to continue living comfortably in the event of your death. Expenses that should be considered when deciding on insurance coverage for your life:
1. Mortgage: Buy enough insurance to pay off your mortgage. This will be a great relief to family in the event of your passing, especially if you are the breadwinner.
2. College Tuition: If you have children already attending college, make sure you buy enough insurance to cover tuition until graduation. If you have young children, use financial tools online to project tuition costs for the year your child turns 18. Buy coverage for a four-year bachelor's degree for each child.
3. Secured Debts: Buy enough insurance to pay off any car loans, home equity lines of credit and any other loans using your home, land or possessions as collateral.
4. Unsecured Debts: Buy enough insurance to pay off unsecured debts, such as credit cards and personal loans as well. Your surviving family will be relieved to not have to make these monthly payments in the event of your death.
5. Monthly Living Expenses: Buy coverage to help with monthly living expenses for the first 2-3 years after your death. Include utilities, food, home maintenance and other expenses you know will exist after you are gone.
6. Funeral and Burial Expenses: The average funeral and burial costs $6,500. Plan for more if you have any special requests in your will. Remember that there may be probate costs as well as a death tax on your assets.
7. Medical Expenses: Sometimes there are significant medical expenses due to an untimely passing, even with medical insurance. Catastrophic illnesses or accidents can add up to tens of thousands of dollars. Buy enough insurance to cover $100,000 out-of-pocket medical expenses tied to your passing.
The average life insurance policy amount is $250,000.
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