Who isn’t looking for ways to scrimp and save these days? But when you’re facing immediate expenses, it’s tempting to put off paying for seemingly remote needs, such as life insurance.
Only 59% of U.S. adults have life insurance as of 2018, according to LIMRA, an insurance marketing research firm. Life insurance isn’t a necessity for everyone. But it’s a must if you have anybody dependent on your income.
Not having any life insurance is one peril. Another, perhaps even more common, is owning a policy but not having enough coverage. So, what is the right amount? Sometimes you’ll hear rules of thumb, such as buying coverage equal to eight to 10 times your annual salary. But financial experts agree such formulas are of little use. Two people with the same salary may have vastly different life insurance requirements.
To get a better idea of what you should buy, add up your survivors’ short- and long-term financial needs:
- Final expenses—What will you need to pay for your burial or cremation expenses?
- Major debts—Add in major debts you’ll leave behind, such as a home mortgage, college loans, car loans, and significant credit card balances.
- Your children’s college expenses—Decide how much of this you want to cover with life insurance. A portion? All of it? This is a less critical piece, as there are many other ways for your survivors to pay for college. If you decide you want to use life insurance to pay for some or all of it, bear in mind that college tuition increases at least 2% each year.
- Income replacement—Once you’ve covered all those categories, calculate what your survivors will need to cover the rest of their ongoing expenses. One guideline is to use a 50%-of-salary figure. Say you earn $80,000 a year and plan to work for another 25 years. Your income replacement figure would be $40,000 times 25, or $1 million.
Life insurance is the cornerstone that supports your other financial goals. If something happens to you, your survivors will have a secure financial future.
Talk to our experts and get a free quote on life insurance today. Visit GNO Insurance Agency