When it comes to the long-term financial future of yourself and your loved ones, few points are as important as a life insurance policy. But getting your own package is more complicated than just the click of a button — there are many other factors to consider when buying and many misconceptions that prevent people from getting the protection they need.
One unclear location is how much life insurance policy coverage a person should buy. Do you need $25,000 in coverage or $2 million? The opportunities are endless. Needless to say, there are no easy answers and everyone’s circumstances are unique. Here are some things to think about when considering your coverage amount.
So you have chosen a service provider, you know what kind of plan you have what you want to get, you know how long the plan will last and who will benefit from your plan, now is the time to decide how much coverage to buy.
Certain factors, such as having a pre-existing problem, can limit the amount of coverage available to you. However, for the purposes of this post, assume you are a healthy, balanced 40 year old individual looking to purchase a 20 year calling plan. There are 4 important points to think about at this phase of the buying process:
Knowing what you want to protect is usually a simple component. You want to protect your loved ones. But that’s not all. If you do have assets and, more importantly, liabilities such as financial obligations, you should ensure that they are included in your coverage amount so that your loved ones are not burdened with those costs when you leave.
Some owners of financial obligations offer loan forgiveness after death, but this is not always the case. If you have points such as car resettlement, mortgage, credit card financial obligations, or training loans, you must ensure that the amount covered exceeds the amount of the financial obligations.
The next thing to think about is how well you will choose to protect your loved ones. Of course, your answer is “as best I can”, but you have to balance that against the premium cost the plan will require. Many people decide to make their spouse or children their beneficiary, which will require consideration of what they will need in the future if you hand them over.
For example, if you are buying a life insurance policy to protect your children, you may want to make sure that an early death will not cost them their first car, good education and learning, or funds for a wedding. Therefore, you must ensure that your coverage amount also includes additional money for important life events that your children are likely to experience.
So we’ve covered why you should get as much coverage as possible, but you need to evaluate that versus what you can afford. You don’t want your future monetary protection to be found at the expense of your current monetary security. Getting $2 million in coverage may outweigh your loved ones’ financial obligations, possessions, and future life chances, but the premiums may be too expensive to handle right now. Preferably, your plan should have minimal effect on your current financial resources and have a sizable impact on your future financial resources.
Finally, you want to think of a plan rider. This is a unique option that can make plans more flexible and accessible. For example, you can opt for an accelerated death benefit biker, which allows you to access your benefits before your death is spent on points such as clinical fees. Or you may include accidental death and dismemberment motorcyclists which provide added protection for accidents and loss of an arm or leg.
However, however helpful these riders may be, they often come at the cost of an increased premium or a reduced quantity of coverage. Insurance service companies are interested in reducing the risk, so anything that increases the risk will cause fluctuations in both premiums and benefits. Keep this in mind when considering including riders for your plans.
Let’s look at an example to show the importance of correctly understanding how many life insurance policies to buy.
Dale is a 40-year-old CPA earning $90,000 per year before tax liability. She has a partner who does not work and mainly cares for their 3 children, who are between 11 and 16 years old. He has $100,000 left on his home loan as well as regular car resets of $250 per month. Overall, the family’s monthly expenses correspond to $6,000 per month or $72,000 per year.
As the sole provider for these expenses, Dale’s income was important to his family’s monetary security. To protect them from poverty if he died suddenly, Dale had to factor in their current costs when purchasing a life insurance policy. Instead, it starts with changing his income. But for a long period of time? Dale also needs to consider future costs. He will most likely enter university in a few years, and with tuition ranging from $5,000 to $50,000 per year for 4 years, Dale will need to think about these opportunities for his three children in the years to come. It didn’t make sense for him to limit their choice of institutions or professions because he didn’t plan enough ahead of time.
Therefore, given that he would need to change his income for at least as much time as his children thought he would finish from university, Dale calculated that he would have to start with at least $990,000 in coverage. After that, taking into account the tuition fees for each child, he put in an additional $350,000 to cover their money level. This led him to buy $1.4 million in coverage. As a healthy, well-balanced 40-year-old man, he invented a 20-year calling plan that costs around $60 per month. It’s something Dale can easily afford in his current budget and more than just a guarantee he’s happy to know that his family’s financial future is safe and secure for years to come.
Deciding how much life insurance policy coverage to purchase can be a challenge, but it is only one component of the process. There are many more factors to consider when buying including which provider to choose, what type of plan to buy, for the length of time you choose to be covered, and that you prefer to be referred to as the recipient. , among others.
Producing the wrong choices in any of these categories can cost you valuable time, initiative, and money. The best thing to do to avoid common pitfalls is to have a life insurance policy representative analyze your circumstances and help you make the best choices for your loved one’s financial future.