Life insurance isn’t an easy topic to think about. Imagining your family without you a part of it can be hard for anyone. Add in the perceived notion that obtaining life insurance can be difficult, and it ends up being a task many people avoid. But the truth is, you need life insurance. You will want to provide for your family even when you’re no longer here, to allow them security and financial freedom in an already difficult time. There are three major life events that should urge you to get life insurance or to review your policy to see if it’s time for a coverage change.
When you get married, you do more than join life with your partner. You take on your partner’s debt, and while you both may make enough to work toward paying it down, if the unexpected were to occur, that leaves the surviving spouse with a mountain of debt and half the income.
Newlyweds often have a small amount in savings, which means final arrangement costs will be another added debt. With the cost of an average funeral at $10,000, you want to ensure the last worry your partner has is added expense.
Finally, if the top earner in the couple passes away, that leaves the remaining partner clambering to replace that income. Life insurance is a way to leave your partner at least some peace of mind after you’re gone. It’s recommended to purchase a life insurance policy with a payout of five times your annual salary. This gives your partner enough time to make any life changes – changing jobs, selling a home, paying off bills – without falling into major debt or bankruptcy.
Whether you’re buying your first home, final home, or a vacation house, you’re making a major life step (one that should be celebrated and protected). A home is likely the largest debt you’ll ever take on, and not one that you’ll want to unload on your family if you die.
When you buy a home, it’s time to obtain a life insurance policy that will cover the cost of the property. This gives your family the option to stay in the home and continue paying the mortgage or confidently sell the property and move if desired. Without a life insurance policy, your partner will be tasked with making the mortgage – as well as paying other debts – in your absence.
Children are one of life’s great gifts, very expensive gifts. The Department of Agriculture reports it costs nearly $235,000 to raise one child from birth to age 17. When you celebrate a new member of your family, there’s more than diapers and food to consider. Contemplate also the cost of education, family vacations, doctor visits, and education. Those costs can be a huge burden on a single parent, so life insurance ensures that your partner will have the financial help needed to offer your children appropriate care and life experiences.
How do I calculate how much insurance I need?
To determine how much coverage you should purchase, start with the price of a funeral – roughly $10,000. Add up all of your debt – house, car, credit cards, student loans – and then consider your yearly salary. Calculate five times your annual salary and add it to the funeral and debt total. If you are the child care provider for your family and do not have a traditional income, use the average American income – around $40,000 – to tally your coverage total. Lastly, think long-term. If you want your children to go to college, it’s smart to include that cost in your coverage as well.
So, when considering how much life insurance do I need? Here’s a basic breakdown:
Funeral costs + debt total + 5x yearly salary + long-term financial needs = policy amount
Work with your partner to determine how much coverage you each need. Purchase the appropriate policy and adjust your coverage as needed as you pay down debt.