How much life insurance do you need?
Life insurance is an important part of any financial plan, providing reassurance that in the case of death, your debts, family and loved ones are taken care of. The benefit from a life insurance product is paid directly to your beneficiaries tax-free, providing them with financial security during a difficult time. Deciding how much life insurance you need can depend on many factors in your life.
The amount of debt you owe is one of the first things you will want to cover when looking at life insurance. Your mortgage, student loans, credit cards, car loans, and lines of credit should all be fully covered with the value of your life insurance policy. When looking at life insurance, you should purchase enough to pay off the full amount of debt you have today.
If you have a partner, child(ren) or others who depend on your income for financial security, you will want to look at a life insurance policy that can provide them with monthly income in the event of your death. Knowing how long you intend to provide financial security for is also important here; are you planning on providing enough income from today until retirement (age 65), or just for a period of time (e.g. 10 years).
Your budget will play a key part in how much insurance you can actually purchase to fulfil your needs. For a male aged 25, a $1,000,000 life insurance policy can cost between $40 to $120 a month, and for a female age 34, the cost is $30 to $85 a month. Depending on your budget, there may be some compromises initially, and you can purchase additional insurance in the future.
The time frame will also play into which type of insurance you will need. With a mortgage, you will be looking at a 20 to 25-year time frame. With a car loan, you will be looking at a shorter time frame (less than 10 years). If you are looking at costs for funeral services, you would be looking at a lifelong product with a constant price over your lifetime.
These four factors all play an equal part in determining the type and amount of insurance you will need to give yourself peace of mind as well as provide support for your family. Most life insurance products have guaranteed premiums and conversion opportunities. If budget is a major factor in determining how much insurance you can purchase, you can look at a lower cost for a short term product that has the ability to convert without having to take any additional medical exams.