Do you know the details of your life insurance policy? Are you confident in that its terms and benefits are exactly what your survivors would need if you were to pass away prematurely? According to U.S. News, the majority of Americans are underinsured and also unaware of the amount of life insurance their households actually need. Since the Great Recession, the number of households that have life insurance has also dropped, with 3 in 10 families having no life insurance at all. Continue reading to find out how much life insurance is enough and whether your family is properly protected against the unexpected.
When you purchase life insurance, you are insuring a life – something that can be difficult to put a monetary value on. The money has to be enough to cover the long-term needs of your dependents, which means predicting your family’s financial needs many years into the future. Though no one knows exactly what tomorrow holds, there are some ways you can more accurately estimate the amount of life insurance that might be right for you.
Rules of Thumb for Purchasing Life Insurance
Knowing how much life insurance you need means taking several factors into consideration, the most important of which are your household size and the ages of your dependents. We recommend using the “family needs approach” as recommended by the American Institute of CPAs. Using this starting point, it is possible to calculate the number of years your dependents will need income replacement should you pass prematurely. Add to that the sum of your outstanding debts, as well as any major expenses – planned and unplanned – your family may need to pay for in the future. Finally, include the estimated cost of funeral and burial expenses, which can easily total $20,000 alone.
Types of Life Insurance Policies
Everyone who purchases life insurance will need to decide between one of three major types of insurance coverage, each of which offers a benefit most appropriate for individuals at various stages of life. The most popular coverage type is term life insurance, which yields significant cash benefits at a small premium. Term life is designed to provide income replacement for dependents during an insured individual’s working years. It is typically established for between 10 and 30 years – usually enough time for dependents to reach college or retirement age. Other insurance types include whole and universal life, both of which offer a lifetime of guaranteed benefits and accumulated cash value.
Avoid Life Insurance Shortcuts
Do not be tempted to take shortcuts when it comes to your family’s future. Simply purchasing life insurance in the amount of a multiple of your income, for instance, could result in a shortfall. Not only does this fail to account for cost of living increases, but it also does not take into account future earning potential or the possibility of creating an income-generating life insurance investment.
That is why we recommend working with a qualified life insurance agent to calculate the correct amount of life insurance coverage your family needs for a secure future. At Reis Agency, we have knowledgeable staff who are eager to help you gain peace of mind in knowing your family is fully protected, no matter what the future may hold. If you need to purchase additional life insurance or simply wish to review your existing policy to determine if you have enough coverage, contact us today. We look forward to serving you soon.