Life insurance can provide financial security for your family after you pass away. Figuring out how much life insurance you need can be tricky. Even if you got professional help selecting an amount of coverage years ago, your situation may have changed since then, and the coverage you chose may no longer be enough.
How Much Life Insurance Do You Need?
It’s difficult to give a straightforward answer to this question because several factors can come into play and because every situation is different. If your spouse and/or children rely on your income, you should have enough life insurance to replace your income for a period of 10 to 15 years. Since inflation can erode purchasing power over time, you should take out a life insurance policy for an amount that exceeds that figure. That will create a buffer and ensure that your loved ones will have enough money to cover their expenses.
Money from a life insurance policy can be used to pay off debts, including a mortgage, credit card bills and auto and student loans. Your life insurance policy should have a level of coverage that will allow your relatives to pay off any debts that are outstanding at the time of your death. Add in a buffer to cover interest and fees.
Why Might Your Life Insurance Policy No Longer Be Adequate?
Many people purchase life insurance when they are relatively young. It’s common for a couple to buy life insurance when they get married. If you took out a policy several years ago and based the coverage amount on your circumstances at the time, you should review your situation and figure out if you need additional coverage.
If your income has increased, your family’s standard of living and spending have probably also gone up. A life insurance policy that was based on your circumstances five or ten years ago might not be able to cover your family’s living expenses today.
You may also have debts now that you didn’t have when you took out the policy, such as a mortgage, auto loan and credit cards. In that case, your family may struggle to pay those bills if your life insurance policy doesn’t cover them.
Talk to Your Insurance Agent
Even if you have life insurance, it may not be enough to protect your family after your death. As a general rule, you should review all of your insurance policies on a regular basis to make sure that your coverage suits your current needs. Get in touch with your insurance agent to discuss your circumstances and coverage and figure out if you need to make changes to your policy.
