Do You Have Enough Life Insurance?
Once you make the decision to purchase life insurance, you need to figure out how much coverage you should obtain. No guarantee exists that the proceeds from your policy will accomplish all of your goals for the money. With proper planning, however, you can ensure that the funds obtained from your insurance policy provide the means to achieve the most important objective of protecting your loved ones.
Recognizing Who Life Insurance Protects
It's important to think about the people you want to protect once you're gone. After all, you'll never get to spend the proceeds from your policy, so you'll probably want to provide financially for your spouse, children, parents, or partner in love. These are the people that you'll most likely list as beneficiaries on your policy.
How Do You Know if Your Policy Has Enough Coverage?
Life insurance policies are designed to assist your loved ones in maintaining their standard of living immediately after your demise. This type of coverage isn't always intended to provide funds for the remainder of their lives, but it is supposed to help provide for the necessities at least for the time being. Therefore, you might want to calculate how much money your family will need to get by for a full year without suffering financially. If you have small children, you might also want to consider how much money your family will need to provide the means for them to live comfortably until they graduate from high school.
How to Figure Out if Your Policy Has Enough Coverage Using Income Replacement
Several different formulas can be used when determining how much money would be needed to replace your income. One formula calculates how much money you would have earned up to the age of retirement, while others figure out how much money would have been earned by the time your children reach a certain age. Each formula uses your income (before taxes) and the number of years until the designated time you have selected. It also takes into consideration inflation. However, the formula cannot take into account certain types of circumstances such as pre-existing medical conditions, accidents, and natural disasters.
Calculate Your Income Replacement Needs Here: Needs Assessment Calculator
How to Figure Out if Your Policy Has Enough Coverage Using the Lump Sum Method
The lump sum method calculates the financial sum needed by your beneficiaries to pay for your funeral, pay up your outstanding debts, and pay off the mortgage. This method can also be used to calculate how much money would be needed to pay for private education or college as well as for necessary medications or household expenses.
Life insurance is meant to protect the loved ones left behind after someone dies. When you obtain your policy, you'll need to select the amount of coverage that you believe is needed to keep your loved ones taken care of financially. In order to determine what that value should be, you need to figure out your objective in getting this type of insurance coverage.
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About the author: Seth Gowdy is the Sales Manager for Pivot Insurance and holds multiple insurance and securities' licenses. He has been part of the financial services industry for nearly 20 years. In his free time he enjoys being outdoors fishing, hiking, and geocaching with his wife and two children. Seth most enjoys helping clients with Pivot’s customized process and needs' calculators. You can reach Seth at 1-800-651-1953 or firstname.lastname@example.org.
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