How Much Life Insurance Do I Need?
You’ve been thinking a lot about the future lately. Retirement is still a long way off. Your kids are young. You’ve got a savings plan, a retirement plan, and your life insurance through your employer, but you know it’s not enough. You know you should buy a life insurance policy, but how much is enough? How will you figure out what your family might need if the worst happens?
Take a look at how to calculate a rough estimate for your Massachusetts life insurance policy so you can rest easy knowing that your family will be taken care of, no matter what happens.
Consider Your Existing Expenses and Debt
Your expenses will likely go up over the years, especially as the kids get older and need more things, but knowing all of your expenses and your current debt will give you a place to start.
- Total debt: mortgage balance, car loans, credit cards
- Monthly spending: budgeted spending and extra expenses (those Starbucks runs aren’t always included in the budget)
- Education costs for your children now, such as private school, and in the future – college
- The amount of income that would be lost if you die too soon – annual salary
- Total amount you have in savings
- Total amount you have in a college account for your children
- Total amount you have in a retirement account
- Total amount of any life insurance you already have, like that offered by your employer
Time to Calculate the Numbers
Now that you have all of the information, it’s time to do a little math.
Add up all of your obligations:
- Annual salary multiplied by the amount of years you currently plan to work until retirement. If you’re 45 and want to retire at 65, that would be your current annual salary times 20.
- Current mortgage balance
- Current balance of all other debts
- The cost of your future needs – education, funeral expenses, and services that would have to be hired out in the event of your death (lawn care, home maintenance, etc.)
Add up all of your current liquid assets:
- Savings account
- IRA, 401k, and other retirement savings
- College account
- Life insurance
Now subtract those two numbers. That’s a rough estimate of your life insurance needs. Round up the final total because it’s always better to have a little more than not enough.
For stay-at-home parents, life insurance is equally as important. Instead of calculating an annual salary, simply calculate the cost of replacing the services you provide – child care, housekeeping, etc. – for however many years until your children are old enough to no longer need them.
Don’t guess at how much life insurance you need. You may spend too much on a large policy or buy one that’s too small and won’t take care of your family. If you’ve got questions about how much life insurance you need or you’ve crunched the numbers and are ready to buy a new policy, contact us at Click Insurance today. Let’s get you the right policy for your family and make sure that everyone you love is taken care of for years to come.
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