How Much Life Insurance Do You REALLY Need?
Having a healthy financial plan for oneself and family is very important in one’s survival. Purchasing a life insurance is usually one of the strategically planned actions to ensure a comfortable future, even if an untimely death ends your earning potential to a halt. But how much life insurance do you really need? Some agents or brokers misrepresent a package just to have a sale and commission, and the insured will end up with an insurance they don’t need and can never use. Their goal is not the customer’s financial security but theirs.
Life insurance is created for the benefit of your dependents. This means that the life insurance will make up for the income that’s lost. How long can the dependents depend on the income of the insured? This is the key question here folks. A popular method is multiplying your annual income with 17 and the product is the term you have to purchase.
For a richer understanding on this method, here’s an example: An couple around 45 yrs. old, both earns $8000 every month and only has one child of the age of 7. After 20 years they will be retiring, the earnings they share allow them to save for their child’s education and their retirement. However, when one partner dies, the expenses must increase by $1000 every month for childcare for another 5 years. After 20 years of 3% inflation rates and 5% on investment returns, the savings they will have is $150, 000.
What happened on the situation above is that the remaining spouse replaces $5000 every month for 5 years and $4000 for the rest of the 15 years. If you get a life insurance, the remaining spouse will get $5000 for the next twenty years, saving the remaining spouse the burden of raising their child.
Now that the amount is cleared, the question is the term. How much term is needed for a life insurance? Online insurance sites offer free quotations on the term and amount you like. You provide the amount and they will calculate the needed term. For a 20 year term life insurance, the amount you need to pay is usually $850, 000, providing the monthly income is on $5000. By 20 years, you’ll have enough to retire on.
Determining our life insurance necessities can be personal. And the norms of computing it might not apply to everyone. What’s important is to discuss it with your spouse or partner, outlining the benefits needed from the policy if something happens.
We all want or lifestyle to stay unchanged, especially for the loved ones we care about. Getting insured is very important though it doesn’t replace the departed spouse, but it eases the burden of getting two jobs just to pay the bills and extra help needed.
Keep in mind these two tips when deciding how much life insurance you need: First, purchasing life insurance terms should be for family protection and income replacement only. Second, always think of the income needed and how long it lasts. Once these two things are deliberated, it’d be easier to decide on how much life insurance you really need.