How much term life insurance do you need?
Determining exactly how much coverage to purchase can be one of the most common and difficult questions when buying life insurance. By simply taking a closer look at your personal finances and goals, you will be able to figure out an amount that helps meets your needs and gives you added peace of mind should something happen to you.
Evaluate your immediate needs and long term obligations
The question really isn’t so much about how much life insurance you need, but rather how much money your family will need after you’re gone. Life insurance can help cover immediate expenses like unforeseen medical bills, funeral expenses, taxes, other obligations and outstanding debts. It can also help your family with ongoing and future obligations such as every day living expenses, paying the rent or mortgage, even contributing to an education fund. Ultimately the amount you choose depends on your personal situation and goals.
A basic formula to help you figure out your life insurance needs
While there are certainly more detailed online calculators, this simple formula above can help you get a general idea of how much coverage you may need. First, assess your family’s needs, gather your financial information and estimate what your loved ones may require to meet their current and future financial obligations, such as mortgage payments, loans, daily living expenses and more. Then add up all the resources that your surviving family members could utilize to support themselves. The difference between their needs and the resources available is the amount of life insurance coverage you may want to consider.
3 key questions to ask when determining a coverage amount
What do you want this protection for? While this might seem obvious, it’s important to ask yourself if this life insurance benefit will cover short term or long term needs – or perhaps both. Consider what financial obligations are your top priorities now and in the future. AARP Level Benefit Term Life provides protection until age 80.
Who will you protect? For example, if you have retirement income and self-supported children, a paid- off home and little debt, you may choose just enough to help your family cover final expenses. On the other hand, you may be a sole provider, a care giver to a parent or grandchild, which may lead you to consider a higher amount to cover long term financial responsibilities. Your individual life stage will factor into the amount of coverage you choose.
How much can you afford? Start by looking at your work situation. Are you still working, about to retire, or on a fixed income? Even if you have to budget more closely to make a monthly life insurance premium payment, the benefit to your beneficiaries in the long run can be well worth the sacrifice now. You can also get a quote here on this site. Just keep in mind that these term rates increase over time.
Whether you can afford a small or large amount of life insurance coverage, having any amount of life insurance is a smart way to protect the ones you care about most.
This article is provided by New York Life for informational purposes only. This article is not intended to provide tax, legal, financial, or accounting advice. Please consult your own professional for advice specific to your circumstances.
