When buying life insurance, a question you may ask yourself is, “How much life insurance do I really need?” We’re sharing key factors to consider when determining the right amount of life insurance for your personal situation.
If you haven’t already, get connected with an insurance or financial professional who can review your personal situation to help determine how much life insurance you need.
1. Your life stage could impact how much life insurance you need:
Your life stage is the largest contributing factor and the first thing you should consider when deciding how much life insurance you should have. Talk with your financial professional about how your age, family status, income level and liabilities impact your need level.
Age is a determining factor for how much life insurance you could have. Typically, the younger you are, the lower your life insurance premium could be.
Family Status can also impact how much life insurance you need. Are you single or married? Do you have children at home? Are your kids planning to go to college? If you have a spouse and children at home, you may need more life insurance than a single person with no children.
Income can greatly influence how much and what type of life insurance you need and can afford. Are you young and building your career? Are you middle-aged and established in your career? Are you retired or approaching retirement? If you have a high income, you may need more life insurance than someone with low income to replace your lost income after an unexpected event.
Liabilities can also impact how much life insurance you should have. What liabilities do you have that your family would need to handle after an unexpected event? Do you have a mortgage? Car loans? Other bills or debts? How much life insurance you need is higher when you have these kinds of liabilities. Without life insurance, your loved ones may be unable to replace your income to help pay off your liabilities.
While the amount of life insurance you need may decrease as you approach different life stages, you should always consider owning life insurance as the need never fully disappears.
2. What you plan to use life insurance for can impact how much you need:
When deciding how much life insurance you need, talk with your financial professional about why you need life insurance. What would you like your life insurance policy to do for you? A big reason to buy life insurance is to take care of the financial impact of an unexpected death. Life insurance can also be one of the many ways to help you plan for retirement.
Do you want death benefits?
Life insurance can provide a death benefit that would replace your lost income for a certain period of time helping your family pay for your funeral expenses, pay off your mortgage and other debts, and could even help pay for your children’s education. Do you want to provide your family with five years of replaced income, maybe ten? If something happens to you, your family may not be able to replace your income or pay for your final expenses. Life insurance can allow your family to maintain the same lifestyle via a death benefit.
Do you want living benefits?
Life insurance can also provide living benefits that can supplement your retirement by growing your cash value. Or, some life insurance products offer an accelerated death benefit, meaning you can access part of your death benefit while you are still living if certain conditions are met like experiencing a critical, chronic or terminal illness. The accelerated death benefit can help you afford medical care and get the support you need when you need it most.
Do you want both? Connect with a financial professional to help you determine whether owning one or multiple life insurance products is right for you.
3. The cost of life insurance can impact how much you can afford:
The cost of life insurance can vary based on the product type, your age and other contributing factors. How much life insurance you ultimately end up buying could depend on how much life insurance you can afford.
Though the need for life insurance is typically higher when you’re young, you may not be able to afford your ideal life insurance coverage right away due to your income level or debts, and that’s okay. In many cases, you can gradually adjust your life insurance coverage over time to meet your affordability and need level.
Depending on your life stage, you may want to purchase multiple life insurance products to fit your needs or you may find yourself unable to afford certain types of life insurance products.
It’s important to assess your situation with a financial professional to determine if you can comfortably afford the premium, both now and if you were to experience a lifestyle change.
Now that you’ve thought about how much life insurance you need, find out what type of life insurance will work best for you in “3 steps to decide what life insurance you need.” Guess what? You’ve already completed step 1.