The answer to the question, “How much life insurance should I take out?” is often met with the seemingly counter-productive question, “How much life insurance do you need?” This is not because life agents wish to be difficult or mysterious but because this question is not one they can answer for you but one you must answer for yourself.
Uses of a Life Insurance Death Benefit
Life insurance is the only type of insurance policy that you can use to create a lifestyle for your heirs after you pass on. This makes it an extremely individual product. Instead of deciding what the value of an object is and then insuring said object for that amount, with life insurance you must decide how powerfully you want your death benefit to affect the lives of your beneficiaries and assign a value to that power and legacy creation.
The first step toward deciding how much life insurance you need is to really understand what your beneficiaries can use the death benefit for. These uses include:
Considering Your Situation
- Paying off debt
- Saving for retirement
- Supplementing an income
- Replacing your income
- College tuition
- Starting a business
When you look at the above list of possible uses for a life insurance death benefit there are probably some that immediately appeal to you and others that don’t. Those that do are based on your lifestyle, your family and the people that you have chosen to receive your death benefit.
When you are deciding how much life insurance to take out, write down all the things you want your death benefit to be used for and then estimate the amount of money that goal or use would take.
For instance, let’s say you want your beneficiaries to be able to use your death benefit to pay off your home and car, replace your salary for 3 years and pay the college tuition expenses for your child. Write down each of these uses and the amount of money each requires. The final amount that you get is a good reflection of the actual death benefit you probably want to purchase.
Adding in a Dash of Budget
Now that you have the amount of life insurance you’d like to have, it’s time to deal with your budget. Using the death benefit amount you have chosen, ask your agent to give you a quote for both term insurance and permanent insurance. Compare prices and see if you can afford one type of coverage with your actual desired death benefit. If not, then consider shaving off a little here and there until you reach an amount that gives you a premium you can afford.
And that’s it—you’ve created an individual life insurance policy with a death benefit that reaches as far as you want it to and a premium you can sustain.
If you would like more information or a quote on life insurance, please call us at (845) 565-2200 or visit us online to get a Life Insurance Quote
Also, visit us online for a free Life Insurance Calculator