How Much Life Insurance Should You Invest In?
Buying life insurance is a critical step in estate planning, but it may be one of the most confusing, and you must know what to do. How do you know how much coverage you need? The right insurance amount is a personal decision, but a few key factors can help you decide. Think about your goals with your life policy death benefit to help you figure out how much you need.
Do You Have Burial Life Insurance?
The first thing to consider is whether you have coverage for your final funeral costs. Often called burial insurance, these policies are typically low value but sufficient for those final costs. The average funeral cost is nearly $8,000 as of 2021. If you do not have burial insurance, account for your final costs in your life policy death benefit.
Do You Have Outstanding Debts?
If you have outstanding debts, including car payments, credit cards, or a mortgage, how much life insurance do you need to pay those off? Account for your debts when you calculate your coverage limits to save your family from the financial burden of your debts. Remember that your estate settles your debts, so allow that in your policy.
Does Your Family Need Income Replacement?
Especially if you are the primary income earner, your life insurance policy may need to serve as income replacement while your family adjusts to the new dynamic. For example, if you want your family to be secure even if you die early in adulthood, consider replacing at least a decade of your salary, so multiply your annual salary by ten.
Will Your Family Have Extra Expenses?
If your death leads to additional expenses that might strain finances, you can increase your life insurance coverage accordingly. For example, a stay-at-home mom may need to find work after your death, which will mean childcare expenses. Factor in an additional amount to help cover those costs.
Do You Want To Create Education Funds?
To establish funds for your children to pay for college, calculate how much you want in each fund and create a trust for each child. Then, set a specific amount for each trust so that your children have funds to pay for higher education, and increase your insurance accordingly. If you wonder how much life insurance is enough for college, consider the current tuition rates for degree programs and round it up by five or 10 percent to allow for inflation.
What Type of Life Insurance Do You Want?
Another critical factor in choosing your death benefit is the type of coverage you want. If you select a term policy instead of universal coverage, consider other insurance at the end of that term. Whole-life or universal coverage will last for as long as you pay the premiums, giving you peace of mind no matter how long you live. In addition, a whole-life policy may gain cash value, increasing the death benefit or potentially paying your life insurance premiums for you down the road.
About Byrnes Agency
At Byrnes Agency, we offer insurance solutions that can be tailored to meet your specific needs. Whether you’re looking for personal policies or commercial coverage, we have the right coverage for you. To learn more about our products, contact us today at one of our two locations.
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Phone: (860) 774-8549
394 Lake Rd
Dayville, CT 06241
United States
info@byrnesagency.com
Hours of Operation: Monday- Friday 9:00am-5:00pm
Phone: (860) 886-5498
6 Consumers Avenue
Norwich, CT 06360
United States
info@byrnesagency.com
Hours of Operation: Monday- Friday 9:00am-5:00pm
Tags: Byrnes Agency, Life Insurance