Once the determination has been made that you need to purchase life insurance, the next step is to figure out just how much you need. While it is true that some Americans are over-insured, more people are either uninsured or under-insured. As you set up your plan you will have to take many things into account, some of which are difficult to pin down to dollar amounts and this is why insurance planning isn’t a cut-and-dried operation. Below are a few tips and cautions for you as you lay out the financial future of your family, even if you aren’t there to enjoy it with them.
- Lifestyle – This establishes the basis for all your calculations. Is your family used to living like Hollywood royalty or in a more modest fashion?
- Lifetime? – Figure out the time period you will be trying to cover, factoring in the age of your spouse, the ages of your children, and the increasing average life span..
- Inflation – Remember, prices for many necessities continue to climb, and this is something to add to your projected expenses.
- Assets v Expenses – Mortgages, college plans and other expenses need to be balanced against assets like home equity and liquid savings.
- Term or Whole Life? – Term life insurance is less expensive to maintain, but it runs out without leaving any benefits. Whole life is more expensive, but accrues cash and benefit values. Some insurance experts recommend starting out with term insurance and gradually converting it to a whole life policy.
- Comparison Shop – At sites like www.accuquote.com and www.lifequotes.com you can view comparisons of numerous insurers.
- Dividends & Investments – You will have to account for vagaries in the performance of all investment funds, which can skew calculations when the market fluctuates.
- Job Market – The employment scene is volatile today, and may continue that way for quite some time, so your surviving spouse may not be able to count on making the same kind of money in the future. Allow a cushion for this.
- Burial – The average cost of a burial service can easily surpass $10,000, which is another large expenditure you don’t wish to saddle your family with, so this also needs to be included in your calculations.
- Professional – After you have done your own research and calculations you might be well advised to consult a life insurance professional, someone who has your interests at heart.
Even when you already have insurance you may need to change your policy if you have another child or buy a second home, so it pays to periodically review your coverage.