subject: Evaluating Life Insurance Needs – Taking the Confusion out of Evaluating Life Insurance Needs [print this page] Evaluating Life Insurance Needs Taking the Confusion out of Evaluating Life Insurance Needs
Evaluating life insurance needs can be a bit confusing for many people. But doing a few simple things you can do to find a figure that will work for you and your family. Every individual has unique circumstances around their life. Those circumstances can dictate how much life insurance they really need. If you ask representatives of different insurance companies, they would provide you with different numbers. If you are trying to figure out how much insurance you would need to replace your annual salary, these steps can help.
The first number you need is your annual, before tax income. If you are a primary care giver for children or other dependents, the number you need is how much it would cost to replace your role as a primary care giver. The next number you need is how long you want to carry the insurance. Some policies will continue as long as you pay premiums. Others have a set termination date. If you have young children, you likely want to carry coverage through the end of their college years. So a 20-year policy might be ideal. But with older children, a 10 or 15-year term policy could fit.
Once you know those two numbers, the next step is figuring out the ballpark number. You might think you need to multiply the number of years by the amount of your annual income. But, that is not necessarily true. If that money were invested, the amount would be lower as the interest would compound and add to its value. However, for simplicity and inflation coverage, it is simplest to multiply your annual income needs with the number of years you need coverage. For example, if the annual income is $50,000 and you needed it to cover 20 years, the amount of life insurance you need is $1,000,000.
But, there are other things to consider in evaluating your life insurance requirements. You want to make sure you cover your final expenses. If your spouse works, you could lower your premiums and coverage amounts. If you have minor children, they may qualify for Social Security benefits as well. That could lower your premiums and coverage amounts as well. If you have significant cash reserves, that would also reduce your need for life insurance. The best way to figure out your life insurance needs is to speak with a qualified insurance broker or tax consultant.
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