When choosing a life insurance policy, many people choose a blanket death benefit amount and leave it at that. While this is an effective approach, it isn't the most comprehensive way to determine your life insurance needs. There are a few things that you need to consider to make sure that you're covering everything you intended to address with the life insurance payout you receive.
What outstanding debts will you have?
One of the things that your life insurance and estate needs to cover is your outstanding debts. This includes things such as your mortgage and credit cards as well as any other loans and bills that you may be responsible for. You might underestimate this balance, especially if you have loan life insurance, so take time to consider the potential for outstanding medical costs after your death too. Sometimes those costs can add up and may take far more of your life insurance benefit than you initially intended.
Do you have young children?
If you have children who may still go to college, get married, or reach other milestones after your death, you might want to allow for money to cover those costs. The more you can delegate to your children's long-term needs, the greater their financial security after your death. This is particularly important if you are the primary income earner in your family because they may depend on that money.
Do you want to leave a legacy?
When you are active in your community or participate in local charity organizations, you may want to create an endowment for the organization that is most important to you. Doing this provides you with the chance to leave a legacy behind with your name on this funding source. If you decide you want to establish something like this, you need to account for that funding when you assess life insurance needs. Remember that any money you set aside for that endowment won't be accessible for your estate, so you'll need life insurance to offset that investment.
Are you concerned about your spouse's financial stability?
Sometimes relationships include one spouse who serves as the primary income earner while the other spouse manages the domestic elements, raises the children, and handles other tasks. If you are the primary income earner and you're concerned about your spouse's financial stability in the event of your death, you might want to consider replacing your income for a certain number of years to give your spouse time to get back on their feet. Many people simply multiply their annual income by five or ten years to provide stability for a spouse.
These are some of the factors to think about when you're ready to buy your life insurance. Contact a local life insurance agency to learn more.
Share8 June 2023
