If you have dependents, you probably need life insurance. However, there are many aspects to buying insurance that can make the purchasing process confusing. Do you need term or whole life insurance? How long a time do you want to be covered? Where should you buy your insurance policy? But before all that, it’s important to figure out how much life insurance you need. We’ve got six questions for you to ask yourself to help decide. The more clearly you understand your situation and needs, the better a decision you can make about life insurance.
1. How Old Are You?
If you are just starting to bring home a salary and have many years of income to cover in case something happens to you, you will likely need a bigger policy. The older you are, the more you may be making but the fewer years you probably need to make up for.
2. How Healthy Are You?
Life insurance prices are partly calculated by how likely you are to die. If you are at higher risk of dying during working years than the average person, you will probably pay higher premiums. To combat this, it’s a good idea to take care of yourself. Actions like quitting smoking, eating well and staying active can help lower your rates.
3. How Much Debt Do You Have?
Life insurance needs to cover more than just your lost income. The benefits help your dependents pay off the debts you leave behind. Do you want your family to be able to stay in the home if you have a mortgage? Do you have other debts that someone else will be responsible for? The more debt you have, the bigger policy you will likely need.
Debt can be inherited, and life insurance can help ease the burden your debt could put on your family after you pass away. (You can see how your debt is currently impacting your credit scores for free on Credit.com.)
4. What Assets Do You Have?
If you have other resources or assets that your dependents will inherit upon your death, you may not need a policy that replaces 100% of your lost income. Your whole financial picture will play into how much life insurance you need.
5. What Do You Spend Each Month?
Your and your family’s monthly needs can be determined by tracking income and outgo in a personal budget or through bank statements. The more money you are spending on a monthly basis, the more coverage you will need.
6. How Much Income Will Your Surviving Dependents Need?
Life insurance is set up to provide for your survivors when you no longer can. Consider if your spouse works, will receive Social Security benefits from your job and how long until your children will be out of the nest.
While there is no clear answer, it can be helpful to spend some time determining how much insurance you need so you have the kind of coverage that’s right for your situation.
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