Life insurance is a cornerstone of your personal finances. Without it, your family could be left in peril with a worst case scenario. While no one likes to think about dying on a regular basis, life insurance is there to protect your loved ones just in case.
Imagine your family having to go through losing you and their home shortly after. This happens to families without life insurance all the time! But you canâ€™t just guess and hope you have the right life insurance. It is important to do the math to get life insurance right.
The first place to look when deciding how much insurance you need is your budget. If you donâ€™t have a budget, itâ€™s time to make one! A budget helps you understand where your money goes over the course of a typical month and acts as a blueprint for the first steps in buying life insurance.
If you want to keep things simple, multiply that number by 120 to get the total life insurance you need to cover your familyâ€™s needs for 10 years without touching the principle. While the value of the life insurance payout should rise over time while invested, the 10 year guideline is a reasonable proxy for choosing a base life insurance policy value.
Keep in mind that group life insurance from an employer likely wonâ€™t go with you if you change jobs, so it is important to get life insurance directly from an insurer or through your preferred agent to ensure portability of your life insurance policy in the future.
If you have children at home, you may want to pay for their college expenses in the future. Perhaps if you were gone you would want to pay off your mortgage so your spouse never has to worry about it again. Your personal finance goals are personal and up to you, but you have to plan for anything important to you in your life insurance decision.
Add up the important one-time costs you have plans for in the future that you want to make sure are covered no matter what. Add that amount to the 10 year expenses above to get a more holistic view of your total life insurance needs.
Life insurance costs typically come in the form of cost per thousand dollars of coverage, so you donâ€™t want to over-insure. Calculating the most likely needs for your family helps you keep your monthly life insurance cost under control while ensuring needs are met.
What happens if you just did the math for the first time and found out you need more life insurance? Thatâ€™s easy! You can go to your favorite life insurance search tool or work with your financial advisor to get competitive quotes from multiple insurance companies at once.
I have $1 million in life insurance coverage for my family from a policy I bought in my late 20s. The cost of life insurance goes up with your age, so the sooner you can lock in a life insurance policy for your family, the better. I pay about $78 per month for a 30-year term life insurance policy with the $1 million policy value mentioned above.
If you have too much life insurance, you may be spending too much on life insurance every month. Also, if youâ€™ve reached a point in savings where you no longer need life insurance, you shouldnâ€™t be spending on life insurance at all on a monthly basis. But donâ€™t cancel that policy until youâ€™ve looked into selling it first.
Some investors buy life insurance policies in bulk with a hope that they will collect on enough of them in the long-term to make up for the buyout costs. If you have too much life insurance and want to sell your policy, check out Mason Finance for an estimate on what you policy may be worth.
Going without life insurance puts your familyâ€™s long-term well being in the hands of fate. Hopefully we all live long, healthy, successful lives. But in reality, no one lives forever. Accidents happen. Life insurance is not optional for a financially secure family.
Because the cost of life insurance only goes up over time, the sooner you can sign up the better. Just do the math first to make sure your insurance policy matches your familyâ€™s unique needs.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer