How to Determine How Much Life Insurance You Need


Like taxes, even death is inevitable, even though most people aren’t keen to dwell on it. All you need to do is ensure that you have your financials in place. This is especially essential if your loved ones are financially dependent on you.

Life insurance tends to cover the funeral and burial expenses and pay off your debt, if any, thereby making your everyday expenses less stressful. This article is ideal for anyone who might or might now have life insurance but wants to understand how to evaluate the coverage needs.

It does become challenging to determine by yourself how much life insurance one needs when there is so much data available on the internet and when you are new to all this. There are multiple factors that one needs to keep into consideration while determining how much life insurance one would need. Factors such as affordability, age, occupation, willingness, and other investments should all be taken into consideration.

Ideally, life insurance is a contract where the insurer agrees to pay a specific amount after the insured dies, provided the premiums are paid regularly. The amount is known as a death benefit. Policies tend to assure the insured person that their loved ones will have peace of mind and financial coverage even after they die. Life insurance is available in two categories, mainly life and term. The whole life policies are said to be permanent life insurance. This means the policyholder is covered for life provided the premiums are paid. Some of the policies tend to allow the renewal of the coverage after the expiry date.

Useful Tool: Use a Whole Life Insurance Calculator

Age and Life Insurance

One of the most common myths that people tend to have in the back of their minds is they have missed the boat if they haven’t signed for an insurance policy yet. The industry believes that life insurance policies become all the more challenging when they start aging. Insurance companies also try and estimate the years one has to live. Just remember, the sooner you start, the better however it is still never too late to start.

Insurance is indeed relatively cheaper when one is young. The fact here is that insurance companies try to charge more premiums from aged people to cover the odds on them, however, in some cases, the insurer refuses to insure the people who are willing to pay for the risks.

Do You Need To Use Life Insurance As An Investment?

If one has a policy that builds cash value, it is ideal to use life insurance as an investment. The cash value policies are ideally known as a method to save or invest money for retired life. The policies help in building a capital pool that earns revenue as interest. However, it is essential to consider the rate of return which one is most likely to get. One can get better returns if they take money from some savings and invest the same in an index fund.

Cash value insurance is most likely ideal for people who don’t have any discipline or plan to invest regularly. On the flip side, if you have some experience, you can earn more money by putting capital into the market. However, that could be a big risk in the long run.

Useful Article: Is Life Insurance a Good Investment?

The Minimum Amount of Insurance One Needs

One of the major ways of choosing a life insurance policy is to understand how much money their financially dependent loved ones will need. The financial experts often advise you to purchase an insurance policy that is valued at least 10 to 15 times your annual income. This is why when it comes to life insurance; you need to know what and how much you need. Renewable term insurance is also an option, but one can consider it after analyzing their situation and the future needs of their family members as well.