How much Life Insurance Do You Need?

Life insurance is important for everyone to have, because of the myriad benefits that policies have on our lives and the lives of our beneficiaries. Depending on the specific kind of life insurance that you decide to get, your policy could even serve the dual purpose of securing your future and that of your beneficiaries by being both an insurance policy and an investment vehicle.

Nonetheless, knowing that one needs insurance is merely the first step in the journey to getting the best policy for your specific needs. It is also important to get the other factors right because the best kind of insurance policy is the one that’s tailored to your specific situation currently as well as your future projections. There are many of those factors, but the amount of coverage is perhaps the most important because of how it impacts your premiums in the present as well as the benefits you or your beneficiaries will get in the future. Here are a few tips to help you arrive at the perfect number:

Choose the Right Type of Policy

The amount of coverage you have on your life insurance policy is crucial, as highlighted earlier, but the type of policy you’re carrying is also a very important factor to consider because the same amount of coverage in the two different types of life insurance, have markedly different implications for you and your dependents. The first type of life insurance is the term policy, and the second is the whole life policy, also known as a permanent policy.

The term policy is operative only for a specific term. If the insured person dies during that period (most often 20 or 30 years), the death benefits will be paid out to their beneficiaries, whereas if they survive the period, they will get nothing when the policy comes to an end. On the other hand, a whole life policy lasts for as long as the insured person is alive, also providing the death benefits to their beneficiaries whenever they die. The differences, however, lie in the amount to be paid as premiums – whole life policies usually have premiums that are substantially higher than those of term policies, which is understandable since there is a certainty that the insurance company will need to pay up the death benefits at some point.

The higher premiums serve the purpose of keeping the premiums fixed throughout your life but also because a portion of the payments will be invested by the insurance company on your behalf. The accumulation of the payments (the part set aside for that purpose) and the investment returns will be available for your withdrawal in the course of the policy if you choose to cancel or to use as collateral for loans from banks or other financial institutions. There are many variables and choosing the best one can be quite complicated, especially without the guidance of competent and experienced insurance advisors.

Evaluate your Current Financial Situation

Before you can get any life insurance policy, you must be well aware of your current financial situation because that will be the main determinant of how well you will be able to keep up with your premium payments. Inversely, the amount of disposable income that you can put toward your premium payments will give you a budget to work with as you consider different types of life insurance policies, coverage amounts, and other factors. Calculate your income in a year from your job and any other sources of income. You should then shift to your obligations and add them up so you can see what your disposable income is.

This assessment can be done with the near future in mind as well, so if there are coming changes to your income or obligations, you can include them too but it’s better to err on the side of caution with a lower estimate to reduce the chances of ending up short if things don’t go as you plan.

Plan for The Future

After putting a figure to how much you are willing and able to apportion toward paying premiums, you’ll need to make a long-term plan so you can see what your obligations will likely be in the future, which you’ll need the insurance coverage to be sufficient for. Kids are the most obvious and also usually the most crucial consideration – How many do you have or intend to have, and where would you like them to go to college? The cost of education varies widely, but on average, planning for $100,000 may kid would work for many people. The next thing is your home – What will you need to pay off your mortgage? Again, this is another thing that cannot be perfectly predicted but experienced insurance advisors can help you do the figures to arrive at a good number.

Health costs and retirement are two other considerations you’ll need to ascertain, after which you’ll then put all the sums together and see what you’ll need to earn as cash value from your whole life policy to discharge your obligations, as well as what your beneficiaries will need to be able to live comfortably off the death benefit if you’re not around to provide for them.

Factor in Inflation and Unexpected Changes

No matter how well you do the calculations outlined above to determine what the best number is for you, there will always be occurrences in the future which you cannot foresee and which you will still need to discharge your obligations in respect of. If you do not have enough disposable income or if you do not earn enough from your policy because you choose a low coverage amount, you will be in trouble.

Hence, it’s best to always add a mark-up to the figure you arrived at by doing the calculations, to give yourself some headroom in case an unexpected event happens. One thing that often comes up is that a person has a specific number of kids (or wants to have that many, in the future), but then they end up having more kids for one reason or another. That means more dependents and could severely disrupt plans if there’s no extra provision.

Inflation is also predictable in that it will certainly occur. How much inflation exactly though, no one knows for sure and it’s another thing which you should give yourself some headroom with so you can be sure that your earnings from the whole life policy or the death benefit your dependents get from either type of policy will be sufficient to serve the purposes which you want them to.

If you believe you require an additional life insurance policy or you’re buying your first life insurance policy for yourself, family, or to help you through the Covid-19 pandemic outbreak feel free to reach out to our professional agents and see what health insurance program might be right for you, that can help you through this time.  Call Vivna, Inc. today to learn more here: 866.793.2301