To get life insurance is undoubtedly a good decision. In this world of uncertainties, where you never know what will happen next, it is essential to get insured. Surely, no one wants to ponder about death, but it’s something certain to come to life.
It is one of the common issues people in all walks of life are facing. What’s more is the situation people are into. Uncertain investments and job markets are uneven on retirement planning. It also complicates the issue of how much life insurance you needed.
Estimating financial needs of your beneficiaries would give you a better idea on how much of life insurance you will need. This can be done through calculating your present and the future cover. It sounds scientific though, but this will truly help you arrive at an exact equation of how much you have to purchase.
1st Equation – To be purchased Life Insurance Proceeds = average burial costs, unmet medical expenses probate cost and taxes on your assets
2nd Equation – To be purchased Life Insurance Proceeds = funeral burial, total mortgage balance, car loans, student loans, other debts
3rd Equation – To be purchased Life Insurance Proceeds= primary to tertiary education support for children (in other words funeral burial and the rest will not be covered)
4th Equation – To be purchased Life Insurance Proceeds = pre-tax earnings, funeral expenses, debts and education
To analyze the four equations, buying a life insurance is 100% proceeds to be received by beneficiaries. However, the need of beneficiaries is double the amount of your life insurance proceeds. This is just in case you’re planning to cover all of the future expenditures of your family.
This is also the point of view of Allan Moore, founder of Serenity Financial Consulting in Milwaukee. In his example, suppose your partner needs $100,000 of annual income. The required annual income multiplied by 25 years is equal $2.5 million. Then subtract the $1 million from your current savings. Hence, you need $1.5 million in life insurance to ensure that your partner has enough.
Conduct the same calculation with whatever potential expenses of your children in the future less your savings. This is actually ideal in knowing how much insurance you need. The truth is agonizing though, but it gives you precise calculation on how much you need and what you have to prioritize. The advantage also is to give your spouse or the beneficiary a hint of what must have to be worked out in the future.
You must not forget what is actually the role and purpose of your Life Insurance. Life insurance is made not to make beneficiaries 100% worry free from financial burden but to assist them in overcoming financial risks, which is too heavy if nothing’s left. Knowing how much you need would just be painful because it’s very expensive. Just give the best that you can.
Dealing with acquiring life assurance is not that easy. You will get trouble with searching the best life insurance, the people who would be your prime benefactors and most especially how much of life insurance do you need.