How much is enough? Its a tough question to answer as sadly you won’t be here to collect it.
The question really should be how much life insurance do your dependents need? Its not an easy question to answer and to can be harder to figure out. How much life insurance do you need can sometimes put people off when they look at the numbers and decide its just too much. Today we will try to break it down in to easy segments and then see where we go from there.
End of Life Expenses
Lets get the hardest one out of there way first. How much will the funeral cost? Burial and other funeral expenses can be costly. On average funerals run between $7,000 – $10,000 depending of course...cremations would be less. Then you need to also factor in Federal and State taxes plus any probate/legal costs.
Mortgage / Debts
The largest debt you are likely to have is an outstanding mortgage. Unless there is any current mortgage protection of life insurance in force, this debt will continue and will require paying. Life Insurance allows your family to stay in their home and maintain their lifestyle. Any other outstanding loans (car loans or bank loans etc) should also be included in the amount to calculate.
Most people would like to have peace of mind knowing their children's education would be funded if they were no longer here. Life insurance can ensure that there are enough funds to make that happen.
Replace lost income
If the main wage earner dies, that income should be replaced. Remember this is the net after taxes and any other regular deductions have been taken out. Start with your current annual before-tax salary. The other number you'll need is the time, in years, until you reach retirement age. Given these two numbers, you can figure out how much your family will need to replace this lost income over this length of time should something happen to you.
Investigate the cost of Life Insurance
Once you have an idea of the total required get some quotes. During this process compare the costs and coverage. You might be pleasantly surprised at how affordable term life insurance really is.