We don’t always like to think about Life Insurance, because it’s a worse-case scenario kind of thing. But it’s important to carry enough Life Insurance to protect your loved ones if that worse-case scenario actually happens.
And not all types of life insurance are only redeemable upon the policy-holder’s death. Some types of policies, such as Whole Life Insurance, can also be an important part of financial planning.
How Much Life Insurance Do I Need?
First and foremost, your Life Insurance policy should cover the cost of a funeral and burial or cremation. Go ahead and calculate from $4,000 (for a cremation) to $15,000 (for a burial) from the start.
Now add the cost of any outstanding debt that you hold. Many forms of debt, including home equity loans, mortgages, private student loans, vehicle loans, and jointly held credit card debt, are owed by your estate after your death. This means the executor of your estate is responsible for ensuring this debt gets paid. You definitely don’t want to leave a grieving loved one to cover your unpaid debt.
Thirdly, consider your dependents. This includes people and pets or livestock. Make a list and figure out how many years each person and pet on the list will continue to need your financial support. Take the highest number of years from your list and multiply by your annual salary. Now add a year’s salary per decade, to hedge against inflation. If you wish to cover any university degrees, add $100,000 per degree.
Add these numbers together. What do you get? That’s the most conservative amount that your policy should cover.
Life Insurance As An Investment
Whole Life Insurance builds cash value, which the policy-holder can withdraw or borrow against throughout their lifetime. You can use Whole Life insurance to fund unexpected emergencies or supplement your retirement income, by regularly “paying” yourself a “salary” out of your policy. Whole Life Insurance is paid out to your beneficiaries upon your death, in an amount based on how much your policy is worth and how much you used throughout your life.
This type of Life Insurance often requires a medical exam to procure. You should speak to an agent as soon as possible, if you want to have a policy in place by 2020.
Life Insurance can be confusing, but a local agent will be happy to help you figure out how much and what type of policy or policies you need. Make the call today, and get a jump start on financial planning for 2020.