Life insurance is crucial, and it’s worth having even if you don’t think you’ll need it. If you agree, but you’re also asking, “How much life insurance do I need?” You’re not the only one who feels this way!
We can’t tell when our time is up, but we can decide how much of a life insurance payment our loved ones will get after we pass away. What better way to take those financial concerns off your family’s shoulders?
What Kind of Life Insurance Do I Require?
Let’s go right to the point: Dave recommends purchasing insurance coverage equal to 10-12 times your yearly salary. Make it a level term life policy with a 15- to 20-year term.
Why would you invest 10-12 times your annual income? Because it replaces your wage in the event of your death and provides a financial buffer for your family to help them get back on their feet. It provides them some money to invest, and the interest they earn each year might provide them with much-needed income while you’re gone.
What Is Covered By Life Insurance?
If you have life insurance coverage equivalent to 10-12 times your yearly salary, your loved ones will be able to replace your income 10-12 times over if you die. It pays your bills, costs, and whatever else necessary for your dependents to get by while you’re gone.
Let’s say we have an Alex as a buddy. He’s a thirty-something office worker with a yearly salary of $40,000. He is married to Sara and has two small children with her. Sara is a mother who stays at home with her children. When it comes to life insurance, this is what Alex and Sara are considering…
Multiply your annual pay before taxes by at least ten. Use that amount when making your calculations if you’re in a position where you expect your income to grow in the following 5-10 years. In Alex’s example, he earns $40,000 before taxes each year. If he dies, he will receive $400,000 in “death benefit.” (Payout is another term for death benefit.)
Stay at home parents
Although the stay-at-home parent in your life is not employed outside the house, they provide an important service to the family. Let us have a look at Sara. She is a mother who stays at home with her children. That means she’s responsible for the children, the household, and the kids’ Uber driver, among other things. For “no cost!” Sara should purchase her own term life insurance to cover those positions, with coverage ranging from $250,000 to $400,000.
If you have children, they are reliant on your income to support them. John and Hannah have two children, ages 6 and 3. This implies they’ll have to rely on their parents for the next 15-20 years. It’s not just the school and college costs that add up, but also medical expenses and extracurricular activities. That’s when 10-12 times your yearly income coverage provides your children with a safe future till they can support themselves.
Some people will utilize life insurance to pay for their funeral if they do not have enough money in the bank. Another option for paying for your funeral is to set aside $50 every month and invest it wisely (in a decent mutual fund, for example). Your money will grow to be more than enough to meet your funeral costs.