It seems as if every time we get life insurance we are told that we don’t have enough. We all certainly want comprehensive life insurance to protect our family financially in the event of our death; however, how much is too much? Can you be over-insured?
The first place to start when determining how much life insurance you need is to determine your financial goals. For example, do you want enough life insurance to cover the balance on your mortgage? Do you want enough life insurance to send all of your kids to college? Or do you want enough life insurance to make a hefty donation to your charity of choice?
Determining Financial Goals
Once you have determined your financial goals, you can begin to understand the amount of life insurance that you must secure to meet those goals. Many individuals, for example, want to leave their family financially secure in the event of their death.
However, what exactly does that mean? The fact of the matter is that the term “financially secure” means very different things to different people. For one person, this may mean paying off all of the household debt, while for others it may mean providing living expenses for a certain number of years following their death. Finally, some individuals seek only “burial insurance,” or enough life insurance to cover their burial and funeral costs.
In other words, the amount of life insurance is dependent upon many factors, including your current financial situation, your family situation and your debts, among other things.
Generally speaking, though, most experts agree that a reasonable amount of life insurance is generally 20 times your annual salary.
Consider any other Life Insurance Policies
In addition to purchasing private life insurance, you will also want to take into consideration any life insurance your employer may offer, as well as any Social Security benefits afforded to your dependents and spouse upon your death. You may also have a vested pension benefit, so check all sources before purchasing private life insurance.
The bottom line is that your life insurance needs are very personal and very dependent upon your current financial situation. Your life insurance will change throughout your lifetime, so it is important to reevaluate your life insurance products at least every few years.
