How Much Life Insurance Do You Actually Need? Sponsored By:Todd Carmack

The question of whether Americans have enough life insurance is one that many financial consumers may have asked before the Covid-19 pandemic that shook the world. But it’s possibly one of the questions most heads of households are presently asking. Data from the Global Atlantic Financial Group shows that 83% of Americans said making sure their loved ones are financially protected is a priority for them now. But it’s all about showing it and not just saying it. 43% of respondents said they don’t have a life insurance policy, while 33% believe they have sufficient life insurance coverage and other assets to provide financial protection for their families and dependents upon their death.

That been said, it’s always important when purchasing a life insurance policy to shop around and find the ideal policy that suits you best. Here’s what to keep in mind when buying a life insurance policy.

 

Figure out the Amount of Payout You Need

To understand your life insurance requirements, you’ll need to determine how much your dependents need to cover specific scenarios. To do this, you have to do a life insurance computation to help you determine the best amount of coverage you need for your beneficiaries. Below are the steps to follow in figuring it out:

 

Evaluate risk

Determine your human life value

How to calculate your human life value

Choose either term life or whole life insurance

 

Evaluate Risk

The first step in determining your life insurance needs is to consider the risks your dependents face if you pass on. How would they deal with the following issues?

Income replacement: Is there anyone dependent on your income? If there is, how long would they continue to rely on your income? For instance, if you have a 7-year-old child, there’s a need for an income replacement of 11 years to provide for them until they reach 18. If your dependents are more than one, you have to calculate the income replacement for each of them.

Education: Everyone wants their kids to have the best education. If you want to reserve college funds for your kids, you can calculate it into your life insurance needs. You also have to calculate for individual dependents to get an accurate figure.

Debt: Do you have any outstanding debt like a mortgage, personal loans, student loans, or other large debts? There’s a need to calculate these debts into your life insurance so your dependents aren’t burdened with debts when you pass on.

Final expenses: You may also include cash to cover the cost of your funeral in your life insurance.

Other expenses: If you have any specific interest you want your beneficiaries to cover in the event of your demise, then you must include it in your computations. For instance, you may want to provide money to cover household bills, support charity, or take care of your dog.

 

Determine Your Human Life Value

The human life value is the amount of coverage an insurer can offer you after evaluation. It has to do with your income potential during your lifetime. The evaluation is based on a formula that takes into account your current earnings. If you have significant wealth or a large amount of savings, it may offset the amount of life insurance coverage you need.

Other considerations are your monthly expenses. How much of your income would be needed to offset bills and maintain the household if you passed on? Once the human life value is calculated, you can head to the insurance company to know what they can offer.

 

How to Calculate Your Human Life Value

Computing your human life value is easy. Typically, it is attained as a multiple of your earnings. For instance, if you are 30, use a multiple of 20; if you are 40, use a multiple of 15, and so on.

For example, let’s say you are 40 years old and earn $80,000 annually. To compute your human life value, you have to multiply $80,000 by 15 to get a human life value of $1,200,000. That’s the total amount you would earn for your family if you live and work until retirement (which is age 65). To calculate your human life value, minus your current age from 65 and multiply it with your annual income.

 

Choose Between A Term And Whole Life Insurance

Deciding whether to go with a term or whole life insurance policy is another decision you have to make based on your life insurance needs. For most people who just need coverage for a specific period, a term life insurance policy is both suitable and affordable. Term life insurance offers a fixed premium over a specified time. It could be 5, 10, 15, 20, 25, or 30-year terms increments, depending on the policyholder’s specific needs. This way, the policyholder can stop the coverage whenever they stop needing it.

Permanent life insurance is ideal for people that need coverage for the rest of their life. It’s suitable for high net-worth individuals that anticipate needing life insurance coverage for a lifetime. Usually, they need life insurance coverage to fulfill a business or estate planning need that will linger for a long time.

Permanent life insurance comes with a much higher annual premium than a term life insurance policy. However, it can build cash value that you can tap into by surrendering the policy or borrow for specific needs along the way.

 

Conclusion

Knowing the amount of life insurance you need is a crucial part of financial planning, given the stakes involved. You don’t want the payout to fall short of the needs of your dependents, but you don’t also want to be burdened by an excessive life insurance premium amount. So it’s essential to put in the effort to get the ideal life insurance coverage that’ll ensure your loved ones are fully protected.

Contact Information:
Email: [email protected]
Phone: 6232511574

Bio:
I grew up in Dubuque, Iowa, where I learned the concepts of hard work and the value of a dollar. I spent years in Boy Scouts and achieved the honor of Eagle Scout. I graduated from Iowa State University and moved to Chicago and spent a few years managing restaurants. I then started working in financial services and insurance helping families prepare for the high cost of college for their children. After spending years in the insurance industry, I moved to Arizona and started working with Federal Employees offing education and options on their benefits. I became a Financial Advisor / Fiduciary to further help people properly plan for the future. I enjoy cooking and traveling in my free time.

Disclosure:
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