Determining Term Life Insurance Coverage Amount? Top 3 Factors to Consider
Because term life insurance is so important for many people, I find that when I first talk with clients, most are unsure of how much coverage they need, but they know they need it. There are many factors that can go into determining how much term life insurance you should consider. It may be less overwhelming if you look at the areas listed below when you are just starting to shop for term life insurance. Here at Pivot, we make insurance simple. So with that in mind let’s look at the following 3 areas to help you get started:
- Income: You need to start with income. Are you the sole earner in your household? Does your spouse have an income or are they dependent on you? Think of everything your income takes care of. If you or your spouse suddenly passes away, what do you have left for an income stream? If your income is $50,000 and you want to replace your income for 5 years then you are at a starting point of a $250,000 policy term life insurance coverage.
- Children’s future: Because term life insurance is temporary coverage, meaning it covers you for a specific period of time, such as 10, 15, and 20 or 30 years, if you have children you will need to ask yourself this: are they minors or adults? If they are minors or extremely young, you probably want to look at a longer term period like 20 or 30 years. You want the term life insurance to be covering you while they are young and financially dependent on you. Also if you want them to be able to go to college one day, and you have suddenly passed away, the money from the term life insurance policy could help your children afford to go to college. Once they reach college age or after, they are then starting their own lives.
- Mortgage/rent & debts and loans: You need to look at your other large financial responsibilities. Things like mortgages, debt and loans are areas that (depending on outstanding amounts) could really be a burden if your family members were left to handle those debts alone. Add up all of your debts, mortgage and any loans. This will give a clear picture of the total outstanding amount, allowing you to factor in how much coverage you need. You can then back into term life insurance quotes based on the amount of money you can afford to spend.
When it comes to shopping for term life insurance quotes, take a look at your current situation and the important assets in your life. Start your quote shopping based on the items you are most worried about protecting. If you do end up being approved for term life insurance, keep in mind that in the future you could always apply for more, if you feel you need it.
About the author: Dan Cody has been in the life insurance business for over 7 years. He loves playing a variety of instruments including the guitar, bass, drums, and piano. He also supports cancer research foundations and volunteers at local pet shelters. Dan enjoys helping customers understand life insurance, so they can find a solid policy that fits their needs. You can reach Dan at 1-800-651-1953 or DCody@Pivot.com.