Estimating How Much Term Life Insurance You’ll Need

Written by: Valencia Higuera

Death isn’t the easiest topic to talk about – understandably, nobody wants to think about dying or losing a loved one. But avoiding these discussions doesn’t change the fact that people die everyday – sometimes unexpectedly – and it doesn’t change the fact that many families deal with financial pressures after the death of a loved one.

Losing a loved one is hard enough, and worrying about funeral expenses and other costs is like pouring salt in an open wound. But it doesn’t have to be this way. A term life insurance policy is an affordable, practical way to ensure that your surviving relatives have what they need to care for your final expenses. They can use the death benefit to pay for your funeral and burial, pay off your debts and replace your income.

Getting a term life policy is relatively easy if you’re healthy, and these policies let you choose the length of your coverage – such as 10, 20 or 30 years. But just like any other insurance policy, it is important that you receive adequate coverage.

Estimating how much term life insurance you’ll need can be a bit tricky, as several factors influence how much you need, such as your family and financial health. For example, a single person with no dependents may not need as much coverage as a breadwinner with four children.

There is no magic formula that works for everyone. However, the way you answer the following questions can help you estimate just how much term life coverage you’ll need to protect your family.

1. How much money will you need for burial expenses?

Funeral costs vary, depending on what you want. The average cost of a burial and funeral is around $6,500, however, those who select cremation pay a fraction of this cost – typically $1,600 or less. If you have a life insurance policy through your employer, this death benefit may adequately cover your funeral. If not, consider the type of funeral you’ll like and purchase enough insurance to cover this expense.

2. How much do you owe? 

Your family shouldn’t have to deal with your creditors after you die, and with a term life policy, they won’t. To estimate how much you’ll need, add up all your current debts, such as credit cards and loans. Do you have a mortgage or auto loan? Do you want your family to use the death benefit to pay off these loans and retain the property? Death does not erase debt, and the policy you purchase should be enough to pay off your creditors.

3. Will you provide your family with future income?

The employment status of your surviving spouse is a factor when deciding how much term life insurance to buy. Maybe your spouse has a decent paying job, thus able to support him or herself after you’re gone. If your spouse continues to work after your death, you may conclude that you only need enough coverage to pay off your debts (perhaps the mortgage and auto loans) and cover your burial expenses. But if you and your spouse also have kids, you may take out a policy for the sole purpose of paying their future college tuition.

However, what if your spouse works, but doesn’t earn a lot? Or what if you’re the sole provider?

There are no hard and fast rules regarding how much term coverage to acquire if you’re providing your spouse and children with future income. As a guide, some experts recommend basing term coverage on income, and acquiring a policy that’s at least 8 to 12 times your annual salary.

For example, if you earn $50,000 a year and you’re the primary provider, on the high end of this recommendation, your family may benefit from a $600,000 term life policy. This death benefit may provide enough funds to pay your funeral expenses, eliminate debt including your mortgage loan, help with your children’s college expenses, plus cover some of your family’s living expenses.

This article was first published on http://moneyprime.com.


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Estimating How Much Term Life Insurance You’ll...

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