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How To Determine How Much Life Insurance You Really Need

By Jason Markum

Oh insurance! It’s such a pain in the behind! I don’t know about you, but I hate making insurance premium payments. I mean I really hate it! Health insurance, auto insurance, homeowners insurance, life insurance… the list goes on and on; it seems like we’re always paying some sort of insurance.

There is one type of insurance, though, that I don’t mind paying so much, as long as I’m not overpaying! And that kind of insurance is life-insurance… and let me tell you why…

If I get in a car wreck and a total my car; I’m out a car if I don’t have good insurance. I can live with that. If I get sick and need an expensive surgery and my health insurance doesn’t cover it, or I don’t have health insurance, I can live with that too. I’ll just borrow some money, or dip into my savings which isn’t fun but at least it’s doable. And if my house burns down and I don’t have homeowners insurance, well that would really stink, but I’d just go rent something until I got back on my feet again.

Life insurance, on the other hand is something else entirely. If something happens to me and I die, then there’s no one left to take care of my family. My children and my spouse are on their own, out in the cold, without a steady source of income.

How will they eat, will they sleep, how will they pay for school and clothes and everything else? These questions will not stand! But there’s something I can do about it today, and that is to take out a life insurance policy that will cover all their expenses if something happens to me.

So I don’t mind paying the life insurance premium. It’s peace of mind is well worth it. At the same time, I don’t want to overpay and since this is such an important thing, and so complicated in many cases, it’s easy to get turned around.

So how much is enough when it comes to life insurance? Keep in mind that the purpose of life insurance is to replace the value of a family member, the economic value of a family member and at the same time provide cash or liquidity to meet the needs of the remaining family members.

If you die but your spouse doesn’t, will they be able to go out and get a job? If so, you may need less life-insurance. If not, or if their job would not pay out as much as you’re making now, you may need more life insurance.

The most important thing to do is sit down with an insurance agent that you can trust, somebody that has been recommended to you by friends and family, or somebody whom you have worked with for many years and you know well. Explain to that person that you want your life insurance policy to replace the income you would make had you not died. Make it very clear to this person that you don’t want your family’s quality of life to change at all if you were to pass away. And then simply work it out with them, I’m sure they’ll have worksheets that you can use to determine the exact amount of life insurance that you will need; and sometimes it’s just best to follow the professional advice that they give you.

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