Short and long-term considerations determine coverage amount
The basic premise of life insurance is to provide a financial cushion for your dependents. The question then becomes, how much of a cushion do you need?
There are a variety of methods and formulas you can use to determine how much life insurance coverage is appropriate for you and your family.
You can look at it from two perspectives: the immediate need and the long-term need.
The immediate need
This refers to the money that will be needed to cover funeral expenses and help your family get through the initial months immediately following your death. This is the time when everyone is still reeling from the shock and trying to figure out how best to get on with their lives. Life insurance can provide a quick financial buffer to help families through this transitional time period.
The long-term need
This refers to the economic needs of the family over a longer time horizon. How much will be needed to cover the family’s annual living expenses? This is often broken down into two categories — one for the living expenses while the children are still at home, and the second for the living expenses for the surviving spouse after the children have moved out: including how much is needed to pay for college costs for the children, and how much to pay off the mortgage?
Unique Needs
This works out differently for every family based upon their unique needs and circumstances. For instance, single-income families dependent on the income of a single wage-earner will have a different set of needs than a two-income family. Additionally, if there is a stay-at-home parent, it is important to calculate the economic impact if he or she were to die, such as the cost of child-care expenses and running the household.
There are a variety of calculators available on the Internet. These can be a great starting point, though I always think it is good idea to discuss your specific situation with a life insurance professional, such as the expert advisors at Quality Term Life Insurance.
Source: Laura Medigovich
