When it comes to trying to figure out how much life insurance you need, there is no one simple answer that works for everyone. Your needs will vary from one family to the next. They’ll also change as you and your family grow and change.
Here are a few things to keep in mind in order to determine how much life insurance you need.
Your Family Now and in the Future
There’s plenty to consider when choosing how much life insurance to buy.
- How big is your family now?
- Do you plan on having more children in the future?
- Have you already begun a college or education fund for your children?
- Do you have a mortgage right now?
- Will you buy a larger house?
- Do you both work or does one spouse stay-at-home?
- How many more years do you plan to work? What age do you want to retire?
- Will you pre-pay and pre-plan for funeral expenses?
- Is it possible family members may live with you as they age?
All of these issues impact how much income you need now or your family will need when you die. You can’t predict the future, but if you have a good idea of how many people will be in your household, and who will be dependent on your income, you have a better idea of how much life insurance to buy.
Your Current and Future Expenses
You also need to be realistic about your expenses, now and in the future.
Current expenses include:
- Credit card debt and other consumer debt
- Medical expenses
- Mortgage balance
- Funeral expenses
- Childcare and/or college expenses
Your future expenses may be harder to predict.
- The income you’d need to replace
- College expenses (if your children are currently young)
- Services that would replace what a stay-at-home parent provides - childcare, housecleaning, etc.
Yes, you need life insurance for stay-at-home-parents, too. If they die before the children move off to college or become self-sufficient, much of what this parent does for your household will need to be replaced through paid services.
Calculate a Rough Estimate
Now that you have some of these details in mind, it’s time to figure out a number for your life insurance. Just how much do you want your family to receive when you die, especially if you die unexpectedly?
Add these numbers together:
- Your annual salary times the number of years you want to replace
- Mortgage balance
- Outstanding debts
- Future expenses like funeral costs or college tuition
- *For stay-at-home parent, include additional childcare or other service costs
In a separate column, add these numbers together:
- Your current savings balance
- The total of any existing college funds
- The total amount of any other current life insurance plans
Subtract the two numbers. This is your rough estimate of how much life insurance to purchase. You should round this number up. Buying more life insurance is better than not having enough.
Does it sound complicated? It doesn’t have to be. Contact us at Charlotte Insurance, and we’ll be happy to do the math for you. We’ll talk about where you’re at now and what you want for your family to help