One of the challenges of purchasing life insurance is finding out how much you should buy. There is no specific set of calculations you can perform to determine exactly how much you should leave behind for your family because every situation is different. However, there are some general guidelines that can help you guess how much you should try to leave behind to your family.
Determine How Much Money Your Family Needs
Begin by tracking how much your dependents need to make it through a year. This can be used to roughly calculate how much your family will need based on how many years you will need. Take your yearly income and multiply it by five. Then, look at the figure you have come up with. Whichever number is higher, you should consider going with. Having a life insurance policy five times your annual salary is usually considered enough to help your family make the necessary financial changes after losing a major source of income.
Consider Investing And Getting Term Life Insurance
One option is to get whole life insurance, which has a savings component and is much more expensive than term insurance. Term insurance is meant to provide protection, not to serve as a form of investment. As an alternative to whole insurance, you could choose term insurance and use the money you would have spent on whole insurance to invest.
Look At Your Debt Other Than Your Mortgage
Look at how much debt you have over your mortgage. Any debt that you have over your mortgage indicates that you are spending more money then you are taking in. If you have a lot of debt, you will need to take on a larger life insurance policy so that your debt will be paid off after you have passed away. However, if you do not have debt and instead have a good savings, you may not need as much life insurance because you are living well within your means.
Subtract Your Own Expenses
Remember to subtract how much you cost your family. Any expenses that are uniquely your own, such as your health insurance premium, does not have to be factored in when determining how much life insurance you will need.
Consult With A Financial Adviser
If you are still unsure about how much life insurance you need, you should consider speaking with a financial adviser. He or she will be able to examine your current lifestyle and determine exactly how much life insurance you will need.
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