If you have decided to get life insurance, you may be confused about how much you will need. Life insurance plans generally start with pay out amounts around $25,000 and go up to hundreds of thousands and even millions of dollars. You don’t want to pay more for monthly premiums than you need to, but you also don’t want to short change your family when they need it most. The following are a few tips to help you figure out how much life insurance you need.
Determine Current Financial Obligations
Outstanding debts, mortgage balances, medical bills, and other obligations may need to be covered by either your life insurance or your estate in the event of your demise. If you want to ensure that your family does not suffer financial hardship or that they receive all of the assets that you intend for them to receive, make sure that your life insurance policy is substantial to cover these obligations and other expenses. Even family heirlooms or estates may be sold to cover obligations if insurance is insufficient.
Anticipate Household Financial Needs
If you have a spouse and/or dependants that count on your income every month, your life insurance policy payout will help them to continue to cover the daily costs of living if you perish. This money may give your spouse the buffer that he or she needs to move, change jobs or obtain a job, or otherwise rearrange finances. The money may also help your children to continue to live comfortably and may even cover the costs of tuition if you prepare for that eventuality.
Calculate Local Burial and Funeral Costs
Final expense costs such as memorial services, plot fees, headstone costs, and burial or cremation services often cost more than individuals anticipate. Before deciding upon a life insurance plan, look into what these services and expenses cost in your area. Keep in mind that your family will have to cover these costs in addition to your obligations and their daily needs and select a policy that will easily cover all of these things. Some people take comfort in purchasing higher than needed plans to help their families.
Consider Final Expense Insurance
If you do not have a spouse or dependants and you have no outstanding debts or obligations, you may wish to purchase final expense insurance instead of life insurance. Final expense insurance is less expensive than life insurance and will cover the wake, casket, flowers, and other final expenses. This type of policy does not provide surviving family members with money for daily expenses, but may be sufficient if there is no one depending on your income.