How To Calculate Your Life Insurance Coverage
Most people know they need life insurance, but just how much coverage they need can be a mystery. Experts will say that you should purchase 10 to 20 times your annual income but this is a generalization and since life insurance needs will depend on your personal financial situation, youll need to do a little more work to arrive at the ideal coverage.
Calculating your coverage
You can also calculate coverage the easy way by using an online life insurance needs calculator. But heres a simple way to manually calculate your personal life insurance needs:
Start with your annual income before tax deductions.
From your annual income, calculate the percentage of income your family needs for living expenses. This figure should not include the amount you put into savings.
How many years do you think your family would need to be covered before they are able to financially fend for themselves? Determine the number of years you would like your benefits to cover and multiply this number with living expenses.
Add annual inflation rates to this amount.
Deduct annual interest rates from this amount.
The results of this exercise will give you a rough estimate of the amount of coverage you would need to replace loss of income (caused by your death) and cover the immediate expenses associated with your death. Youve probably realized by now that the younger you are the more coverage you would need since your earning potential is less at this time and you have more years to cover before you retire.
Additional factors to consider
Replacement of income is just one factor that you will need to consider when calculating life insurance coverage. There are other factors to consider such as:
College tuition for your children. Given the exorbitant cost of a college education, youll need to start early to save up for your childs education. Including your childrens college tuition in your coverage would ensure that your children get a good college education.
Funeral expenses: A decent funeral would cost about $10,000. Most life insurance can work with your funeral parlor and take care of these expenses for your family.
Your debts. Any debts you may have such as a mortgage, car loan, student loans, personal loans, credit card debts, etc, should be included in your coverage. The last thing you would want to do is pass on your debts to your spouse and leave her with this overwhelming burden. This is vital for a stay-at-home mom with no means of income. Its also equally vital for earning spouses, who may want to retire to take care of the children after you die.
Special needs child. A child with special needs may need lifelong care. And since such a child will not be able to support him/herself, the benefits of a life insurance policy would enable her/him to be taken care of through assisted services at home or in a nursing home.
Your daughters marriage. You could include an amount to cover your daughters marriage. Having the foresight to financially provide for her so that she can have the dream wedding she always wanted will mean much to her on her special day.
Reviewing your coverage periodically
As your financial situation changes you should review your coverage and adjust it to suit your current life insurance needs. Marriage, the birth of a child, additional debts you acquire or any debts you have paid offall affect your coverage. Experts recommend you review coverage at least once a year. Why? Because you dont want to be paying extra premiums (money you could utilize elsewhere) for a higher coverage amount you dont need; neither do you want to pay less and be inadequately insured. As far as possible, your coverage should be ideal for your current situation.
Getting more coverage for the least cost
Theres a better chance of you finding the maximum amount of coverage for the least amount of money with reliable aggregator websites that represent hundreds of life insurance companies. They give you opportunity to compare life insurance rates, products and the financial ratings of each company with instant quotes from top-rated life insurance companies. If you need help calculating your coverage, use an online life insurance needs calculator. For further help, talk to a licensed life insurance professional sitting at the customer service desk of a reliable online life insurance quoting and brokerage firm. Shopping online for life insurance could also get you better discounts.
by: Denise Mancini