Life Insurance - Deciding What You Need & Policy Information Missoula MT
Company: Estate Conservation Associates
Franklin & Marshall College A.B.
Stanford University M.A.
Years Experience: 34
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Great Falls, MT
Life Insurance, Financial Planning, Financial Services Professional, Retirement Planning, Investments
Life Insurance - Deciding What You Need & Policy Information
Life Insurance - How do I decide what I need?
This is a big question. In general, most financial planners will say that you should have life insurance equal to at least 5 times your annual salary. Some folks with more dependents (older parents, children and spouse) may need more life insurance.
Other financial planners say that you should look at the total amount of income that you want to replace between now and retirement. While the numbers can be big and scary if you are young, your actual life insurance needs will decrease over time.
Let's look at an example. If I'm 25 and make $35,000 a year and I want to replace the income I'd make between now and retirement age, I'd be looking at life insurance for $848,000. Whew! Well, there are a number of concerns with that:
- First and foremost, can I afford the premium?
At this age, you may be able to. The risk to a life insurance company is low.
- Does my spouse work?
If my spouse does work I may not have to replace my total salary.
- If I have a stay-at-home spouse, would they consider going back to work after a certain period?
If you think your spouse may want to retrain for another career you may actually need to consider more money. Or perhaps, if the total amount of the life insurance policy paid out the mortgage and put some money in the bank, your spouse could return to the workforce on a part-time basis.
- Am I trying to leave my family 'set for life' or am I trying to get them over a tough time?
This is entirely up to you. Balance it out against the amount of the life insurance premium.
- Is it overkill?
(Excuse the pun.)
These are questions which must be considered. At a minimum, your life insurance coverage should:
- Fully pay out your mortgage
- Fully pay for funeral costs
- Allow for supplementary childcare for at least 2 years (if you have children)
- Fully pay out any other debts, like car loans, outstanding bills from credit cards or utilities, etc
- Leave a little something in the bank for emergencies
Does 5 times your salary meet these requirements? Great. If not, you might have to consider up to 8 times your salary. Then consider all the factors which might affect your spouse's ability to handle the situation - perhaps you've died in an accident in which they were hurt too, or perhaps you have a family of 9 children and your spouse couldn't return to work - and add additional money as required.
What about college for the kids?