If you have people who depend on you financially, you should purchase life insurance. This will ensure your beneficiaries will not have a great financial burden when you are not around and will also give you peace of mind. However, how much life insurance should you buy?
First, you have to decide whether to buy term life or whole life insurance. Term life insurance is usually cheaper than comparable whole life cover mainly because it runs for a specified number of years while the latter runs indefinitely. The amount of insurance you purchase will mainly be determined by your current disposable income and the anticipated financial needs of your beneficiaries.
Financial Obligations Life Insurance Can Cover For Beneficiaries
Life insurance can be used to cover any financial obligations your beneficiaries may have when you pass away. When deciding on the amount of insurance to buy, think about:
- The expected amount of funeral costs
- The amount of debts you have and how much of it is not life insured
- Whether your family will need to pay for education for the children
- Whether you need to offset your loss of income and for how long
Your premiums will depend on the amount of insurance you want to purchase. The general rule of thumb is that you should purchase cover amounting to about five times your gross income. However, this is not a standard rule that everyone must follow. Your needs may dictate otherwise based on the above factors.
Since your life and financial needs are always changing, it is important to regularly review your covers and make them reflect your needs. For example, if your children have finished college and you no longer have to worry about money for their education, you can decide to reduce the amount of term life cover. On the same note, if your parents have retired and have to depend on you financially, you may have to increase your insurance to cater for this added financial obligation.
Getting the right amount of life insurance requires you to calculate your current and future financial needs. You may have to adjust the amount of insurance you purchase as your financial needs change.
What You Should Know About Life Insurance
