How Much Life Insurance Should I Consider?

Life insurance does not have to be complicated or expensive. At All Things Insurance, we can help you compare your options and determine the coverage you need.

Life insurance is a contract between a policyholder and an insurer. In this contract, the insurer agrees to pay your beneficiary a specified amount of money at the time of your death or after a set period. This policy does come with a premium you are required to pay to keep your policy active. 

What Are The Benefits Of A Life Insurance Policy?

There are multiple benefits to having a life insurance policy, such as:

  • life insurance benefits are tax-free
  • your dependents will not have to worry about living expenses
  • it can cover final expenses
  • you can receive coverage for chronic and terminal illnesses
  • policies can supplement your retirement savings

How Much Life Insurance Do I Need?

When deciding how much life insurance coverage you need in your policy, you have to consider multiple factors, such as debt, income replacement, and ensuring you provide enough insurance for those around you. It is recommended that your policy value be worth 10 to 15 times your annual income in coverage. Your amount may vary, though, so you should always contact an agent to provide answers to your questions about the amount you truly need. 

Your life insurance should cover all the debt you leave behind, such as student loans, mortgages, credit cards, or personal loans you still owe. You must also calculate the interest that will be owed as well when deciding on the amount you choose for your life insurance policy. 

If you are the sole provider for your household, your life insurance policy should be enough to cover their living expenses, plus a little extra just to be safe. In order to determine the amount needed to supplement your income, you take your annual income amount and multiply it by the number of years they will need this amount of annual income. You can take a Needs Assessment Analysis to better forecast the amount of income you should leave for your dependents. 

When determining who to insure, the rule is to only insure those whose death would provide a financial loss to you. It is recommended to insure your spouse if they provide income for your household. If they do not provide income, there is no need for a policy because there is no income to supplement. If this situation is what you are faced with, you should use the income replacement calculator and include his/her income. This concept also applies to business partners that have established a financial relationship. If you co-own property together, for example, you may consider taking a policy out on them to cover the expense of the property at the time of their death. 

Another way to calculate the amount needed for your life insurance policy is to simply take your annual salary and multiply it times the number of years left until retirement. You may also use the standard-of-living method, which is calculated by the amount needed by your survivors to maintain their standard of living multiplied by 20.  

Get Life Insurance Today

At All Things Insurance, we serve all of Minnesota, including communities like Saint Paul, Bloomington, Victoria, North Oaks, Minnetrista, Medina, Waconia, and Chanhassen. To learn more about the right life insurance policy for you, contact us today.