There are not many certainties in life but unfortunately death is surely one of them. So why not plan for the inevitable? No one likes insurance but when you know there is a 100% chance that you will use it one day, not having it should not be an option. Of course with life insurance you do not know exactly when you will need it, but like all insurance, you have to get it before you do.
Now that you are older with more responsibilities, maybe a spouse, children, and financial obligations, you realize that you need to be prepared in the event of your untimely death (which by the way death is always untimely). So now that you know you need to plan, you may wonder how much life insurance is adequate for your family.
Determining how much life insurance is needed is based on several factors. For starters you want to cover the cost of your burial which can start at around $10,000. Then you want to consider other financial factors that will help you determine how much coverage is adequate for your family.
An acronym used in the insurance industry as a basis for calculating life insurance needs is DIME. For starters, you want to have enough insurance to cover any outstanding Debt that can burden your loved ones. This is especially true for debt held jointly with someone who will inherit the debt should you predecease them. Then you should consider Income for family support. You should determine how much of your income your family will need to maintain their lifestyle without you. This is essential if you have minor children or a spouse that needs continued financial support. Some things to consider are living expenses, which include any cost for your family to maintain their current lifestyle. An easy way to access the financial burden you may leave behind is by simply looking at your income contribution to your household. Think about how many years of your income you would like to replace for your family.
Another factor is paying off Mortgage balances. If you own a home that is not paid for that you would like to leave to family, include the balance of the mortgage in your insurance calculation. It should be clearly expressed in your last wishes that proceeds from your life insurance policy should be used to pay off your mortgage. Last but not least, if you have minor children you may want to also consider leaving funds to cover the cost of college Education. The cost of education can be very expensive so covering that cost can ease future financial burden for your family. Other things to consider are if you want to leave money to a charity or other causes.
Proper life insurance coverage is not only important for your peace of mind, but for the future of your family. All family members including minor children should have adequate life insurance coverage. Although children typically do not have financial obligations, you will need to at least cover the cost of burial. I know we don’t want to think of outliving our children but we still have to be prepared in that unlikely event.
