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The amount of life insurance coverage you need is largely dependent on your income, your debts, and the money your loved ones will need to be supported. Calculate these coverage needs taking the following into consideration.
Dependents
Do you have loved ones who rely on you for financial support? That includes children and adult dependents. Income earners who care for these dependents need to take care of their financial future by purchasing life insurance coverage that would provide enough money to pay for the cost of raising children or keeping a roof over their heads. That goes for spouses who rely on your income as well.
Debt
The death benefit from your life insurance can cover debts such as student loans, car loans, credit card bills, and personal loans. Make sure your life insurance policy has enough coverage to pay these debts off in full, so you don’t leave that responsibility to your loved ones. Take interest into account when you calculate how much money will be needed to cover your debts.
Mortgage and Tuition
How much money will it take to pay off your home? How much money will tuition and schooling cost for your children? You need to factor both of these in, accounting for interest.
Income Replacement
When you are gone, your loved ones will lose the support of your income. You need to purchase a policy that is substantial enough to cover your lost income plus extra to factor in inflation.
Service Costs
Do you use a childcare service or help pay for the long-term care of a loved one? Enter these costs into your calculations to make sure that everyone will continue to be taken care of in your absence.
Calculating Your Life Insurance Needs
There are a few ways to calculate how much life insurance you need, and they start with your income. If you are single or have no children, multiply your income by 10. If you have children, multiply your income by 10 then add $100,000 for your child’s tuition.
Alternatively, you can use the DIME formula: debt/final expenses, income, mortgage, education. With this formula, you add up your debts plus your estimated funeral and burial or cremation expenses. You then decide how many years your family would need support and multiply your income by that number. Add the amount you need to pay off your mortgage. Finally, add the estimated cost of sending your children to school and higher education.
The help of an expert may be needed to fully calculate your life insurance needs. Contact Insured For Life today to build a policy customized to your goals.
