If you are not self-insured, life insurance is the best option to make sure your surviving loved ones are financially taken care of.
When your loved ones are mourning, the worst thing you could do is leave them with a financial mess.
We all know that finances alone are stressful. So, can you imagine having a huge financial burden to deal with while grieving the loss of a loved one?
The best way to show your love is to lift the financial burden from your family’s shoulders. And life insurance is the best way to do that when you can’t self-insure.
So, let’s figure out how much you need!
WHAT DOES LIFE INSURANCE COVER?
First, we need to go over what life insurance covers so that you understand how much you need and why.
Download the life insurance template to follow along!
ABOUT YOU
In the About You section, you will fill out your age, marital status, number of children living at home, and annual income.
The first three questions are necessary to evaluate how long your life insurance policy needs to last.
If you are married with three young children, then you need a term life policy that is 15-20 years long.
The goal is, that once the term life policy is up, the children should be supporting themselves and you should be financially stable enough to “self-insure”. So, after the term life policy is up, you will no longer need life insurance.
You can also use this template to determine if you are financially capable of self-insuring. Keep reading to see how!
The annual income is multiplied by 12. When deciding on life insurance coverage, you need to have coverage that is 10-12 times your annual income. Especially if you have a spouse or children that are dependent on your income.
If you are a stay-at-home spouse, do NOT leave the annual income blank. You may not bring “in” any income, but you do keep income from going out the door.
Stay-at-home spouses need to calculate their annual income by the value of the household services they provide.
Let’s say we have a stay-at-home mom that cares for the children, does housekeeping, cooking, and driving children to activities.
So, the stay-at-home mom will add the annual average cost of the following:
| Childcare | $20,000 |
| Housekeeping | $10,000 |
| Cook | $12,000 |
| Uber | $5,000 |
| Total | $47,000 |
This example shows for a stay-at-home parent, your “annual income” coverage will be $564,000.
Because if something were to happen to you, your spouse would potentially need to pay these amounts to make ends meet.
Of course, these numbers will need to be figured out depending on your location.
ABOUT YOUR DEBTS
Again, the goal of life insurance is to prevent your loved ones from dealing with financial burdens after you’re gone. So, that means getting life insurance coverage to take care of your debts is a must.
This includes your mortgage, vehicle loans, personal loans, credit cards, etc. If you have federal student loans, these can be left out. Federal student loans, to put it bluntly, die with you.
ABOUT YOUR OTHER EXPENSES
Now that we’ve covered your income and debts. It’s time to add in coverage for other expenses.
This section is a catch-all for expenses that you’d like your family to be covered with. Not all of these expenses need to be filled in, it is based on your individual situation. You may only need funeral cost coverage.
Or maybe you have no retirement savings, and you want a little extra inheritance cushion.
Whatever it is for your situation, this section will get you thinking about what other expenses your loved ones may be faced with.
ABOUT YOUR SAVINGS
Remember in the beginning when I said the life insurance template can also be used to see if you are “self-insured”? This is the section to find out!
The savings will be subtracted from your current accumulated “coverage”.
For example,
You are currently at a total of needing $600,000 in coverage. However, you have $700,000 in retirement, investments, and savings.
Then you are considered “self-insured” because your loved ones will inherit the total coverage that they need to live. The template is a great way to determine how much coverage you need, so you have a number in mind to get to “self-insured” status.
So, let’s use the $600,000 coverage example on someone that isn’t self-insured. The total of retirement, investments, and savings is only $350,000.
Therefore, the life insurance coverage needs to be $250,000 to get you to a $600,000 coverage for your family.
Of course, this is just a generic calculation to give you an idea of how much coverage you may need. Everyone’s situation is different, and this is only for illustrative purposes and not a recommendation. ALWAYS consult with a professional on your specific situation.
Hopefully, this gets you thinking about your life insurance coverage. If you aren’t self-insured, please make this a priority, and don’t let another day go by being unprotected! Follow along for more money tips!
All videos are made with Animaker, sign up for free today!
