Answering the Life Insurance Question
When planning for retirement one important question will crop up; “How much life insurance should you have?” In order to answer this question, many people turn to formulas in order to come up with quick estimates. However, these shortcuts do not provide the specific type of information you need to make a well-informed decision. Figuring life insurance takes a bit of research and perhaps some consultation periods with a professional.
The first step to answering this question is to remember the primary purpose: to make it possible for your surviving loved ones to pay off any debts and to carry on their lives even though you are gone. How much life insurance should you have? Consider your specific situation in order to determine the answer.
Begin by figuring out the expenses related to the funeral and burial. As your family struggles to cope with their loss, trying to come up with the money to pay for a funeral can be overwhelming.
Next, total up the balance of your mortgage, any credit card loans, student debts, and other outstanding loans that need to be paid off. The loss of a home or car can be devastating at any time, but following the loss of a loved one might be an intolerable burden.
If you have children, then consider how much it will cost to send them to school. One expert suggests that you look at the colleges of your choice and then calculate their future costs by 5% a year. Decide whether you want to leave enough to pay for the entire amount of schooling or a portion of the tuition.
Finally, calculate about half of your pretax earnings and aim to provide that much for your family members. If your spouse earns a good salary, then the amount of insurance you purchase may be lessened. Medical costs, on the other hand, might increase the amount you wish to purchase.
When you add these four figures together, you should have an estimate that reflects your specific situation. Invite a professional to guide you through the process of determining the answer to the question, “How much insurance should you have?” Together, you and the professional should come up with an answer that is best for your situation.
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