Expert Q&A

Well, since everyone’s situation is different, it’s
difficult to provide a blanket answer. You may want to try a “fire drill” to
test if you have a sufficient amount of coverage. On paper write down your
death benefit proceeds. Start subtracting what you’d want to have taken care of
(medical bills, mortgage, other debt, college funding, future savings, etc.). What
are you left with? Anything? If you are falling short you may not have enough
coverage. However, it’s best to sit down with a professional and do a thorough review.

Your life insurance should not be costing more than 2.5% of your monthly income, in regard to your monthly/annual premiums. You need to make sure that you are dealing with a company that will provide you with reasonable; Final Expense coverage, Mortgage Protection, Income Protection, and College/Education expenses for your children. Most of us do not need million-dollar policies. Don’t let agents talk you into policies that exceed the needs of your family in the event of your death. Life insurance is not a way to build cash for the individual taking the policy. Life insurance is for those that we leave behind. In addition to life insurance, Supplemental Health insurance is important to protect an individual in the case of; Cancer, Heart Attack, Stroke, Kidney Failure, Blindness, the loss of a limb or both limbs, and Accident Protection. I hope that this helps.

So, how much life insurance do you need? Well, the answer isn’t really how much life insurance you need… it’s how much investment capital your family will need at the time of your death. Their need for capital — on a gross basis — is really a function of two variables:

1. How much will be needed at death to meet immediate obligations?

2. How much future income is needed to sustain the household?

The first category is fairly easy to estimate. It’s the sum of final expenses (including uncovered medical costs, funeral expenses and final estate-settlement costs) and other lump-sum obligations (such as outstanding debts, mortgage balance, and college costs). The second variable is a bit trickier. It involves calculating the “present value” of future needed cash-flow streams. By answering a few simple questions, you can get a rough sense of the needs for capital that might exist at your death.

Click here to access the Life Insurance Needs Calculator.

A properly trained Financial Advisor who knows the inner workings of insurance can provide you with the right solutions. A LEAP trained advisor can provide you with the only true financial simulator software so that you can actually test the coverage before you buy it.

Your life insurance needs vary with your age, income that needs to be replaced, length of time for coverage to be in effect, debt payoff needs, and additional considerations such as college
education for children, long term care, and estate planning. It’s best to sit down with a knowledgeable financial professional who can perform a thorough evaluation that addresses your needs and goals.

The rule of thumb is 10x your annual salary, but this is not an exact science. If you would like you spouse and family to be completely debt free that is one thing, but if you would also like to be debt free and replace your income you would need to calculate your debts (mortgage, credit cards, total liabilities) and added them up to be a certain amount and then consider that you can get a guaranteed stream of income for life of roughly 5% of the death benefit amount by using an annuity for income for family. Ex: $100k salary, death benefit of 10x salary=$1Million, $1,000,000 × 5%=$50k year for life (or 20x salary to replace all income)

Most financial experts recommend to have a a death benefit that is 8-12 times the annual salary. I personally side with the experts who recommend 10-12 the annual salary. Being properly protected for a family is very important. Having protection 10 times the annual income is a good point for many reasons.

The most important aspect of buying life insurance is determining how much you need and for how long a duration. Estimate what your family would need after you are gone, to meet their immediate and ongoing financial obligations. Then calculate how much income, savings and life insurance you may already own. The difference between the two is your need for additional life insurance coverage. A qualified insurance professional will be happy to conduct a thorough analysis of your needs, then help you to determine the right amount and type of coverage that’s right for your situation.

You truly need to sit down with an agent and discuss what your needs are. Everyone’s situation is different and also changes with time. An agent can help you plan accordingly.