How much coverage for life insurance do you need?
How much coverage you need in life insurance would depend on your family condition, assets and expenses. But it can be difficult to determine which amount is right for you and your family. You can find insurance companies and authority pages that inform you individually and firmly about how to measure. Below are three of the simple equations for determining how much coverage to buy life insurance. Choose the one that is most appropriate for you and the needs of your family.
The Mortgage Formula
This calculation takes into account the house mortgage and each parent ‘s current working status. You want life insurance coverage with a parent working full-time that is two times as high as the amount owed on a home loan. If the mortgage was $250,000, for example, for each parent who works you want at least $500,000. When a parent passes, then the mortgage is paid and additional cash is available.
You may only need half that to the non-working parent if one parent does no longer work outside the house. This is $250,000 in the above case. The hope is that the surviving parent has a full-time job which will pay for the mortgage, and extra cash out of the insurance fund is used for day care and other child-raising expenses.
Formula for income replacement
This basic formula multiplies the gross annual income by at least 10 years, to the amount of years before retirement. You need a policy that pays between 0.5 and 1.75 million when you die, whether you have a $50,000 or 30 years old and decide to retire at the age of 65.
Line Item Formula
Most insurance experts say it’s the most precise calculation to write down and add any estimated cost together, but it takes some time to determine. There is an accurate estimate of your family’s basic costs if you die today. You need to add up the estimated expenditures such as mortgage payments, everyday living expenses, education, childcare, medical and all other predictable expenses for the next few decades to make this estimate.
An insurance broker can work with you on different formulas to decide how much insurance you need. You would also need to know how much of the life insurance premiums you will pay each month. The higher the coverage, the higher the monthly or annual fee.
