Calculating how much life insurance involves evaluating your financial circumstances, which vary widely from family to family. In essence, you want a policy that will cover income loss due to death, provide your family with the capacity to pay off all bills, and provide your family with the financial support your dependents need. A basic calculation is to purchase a policy that pays out ten to fifteen times your yearly income – but you may want more. Life insurance companies may only offer a specific policy limit based on your income and current net worth.
How to Calculate Your Family’s Needs
To determine the size of your policy, add your income to your assets, the cost of your mortgage, the high cost of raising children, including college tuition, healthcare, along with five to fifteen years of the income you would have provided to the family. You likely have some amount of credit card debt, one or two auto loans, and other obligations. Add all these obligations to come up with a reasonable amount of coverage.
One of the most important benefits of life insurance is that the death benefit is paid out quickly, providing the critical support your family needs at one of life’s most devastating and stressful times. While your assets may be in a trust or owned jointly, it may take several months, or even years in some cases, for an estate to be finalized, which can leave your family in a dire financial situation. The life insurance payout provides the income needed, including paying for end-of-life expenses. The last thing you want to do is leave your family suffering financial hardship should you suddenly pass away or become incapacitated.
Types of Life Insurance Policies
Younger people often purchase term life insurance, as the rates are much lower. The best policies available offer you the option to upgrade to a whole life policy, which can be a savings vehicle, that will allow you to borrow out of the policy and provide permanent protection with an asset that increases in value every year.
Protect Your Family with Life Insurance
It is not often comfortable to consider a sudden death or serious illness or accident that may leave you unable to earn a living. Many life insurance policies offer an option to add a “rider” to pay out some portion of the policy limits if you are disabled, which is a wise choice. Choosing the right type of policy is a critical aspect of financial planning, with a full understanding of the fine print. Our helpful and local agent can explain the differences in each policy and guide you to the policy or policies that make the most sense for your family and your budget.
Be Aware of the Rules
You do not want to create any barriers to an insurance payout, so ensure you are completely honest about any health conditions when applying for a policy, as well as any hobbies or recreational activities that a provider may consider high risk. Our agent will help you through the application process. You will need to undergo a basic medical exam, and we will arrange this for you. We work closely with our clients to ensure they purchase the best policies, from reputable providers, with the highest limits and premiums you can afford.
Erie Insurance - One of America’s Best Insurance Companies
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