How Much Life Insurance Do I Need?
By Dylan Delhart
The biggest problem I’ve noticed in the insurance industry is people want life insurance, but with all of the variables and unexpected costs, they have no idea how much coverage they actually need. Having the correct amount of coverage is extremely important. With not enough coverage you could leave your family in debt, and with too much coverage you’ll be paying too much of your hard earned money on monthly premiums! That’s why with help from our friends at Nationwide, I’ve created an easy way for you to calculate exactly how much coverage you and your family needs.
Let’s use Jane Smith as an example. She’s a single mother with a 13-year-old daughter named Sara.
Jane has a mortgage on her home and she still owes $180,000.
She makes $40,000 a year, and if something were to happen to her, she wants her daughter to have half of her yearly income for the next 5 years. $80,000 divided by 2 multiplied by 5 years = $100,000.
Sara dreams of going to college in California, and Jane wants to make sure if she’s not around to pay tuition Sara can still go to college. Let’s assume that tuition will continue to steadily rise and when Sara goes to college it will cost $30,000 a year. $30,000 a year for 4 years = $120,000.
Jane has $4,500 in credit card debt that she does not want to leave behind for Sara to have to deal with.
Jane wants to leave Sara an emergency fund for unexpected expenses such as a new roof for the house or new engine for the car. Experts suggest 3 months of income for your emergency fund. $40,000 divided by 12 multiplied by 3 = $10,000.
Jane also wants her funeral to be paid for by her life insurance. The average cost of a funeral is just over $8,000 let’s round it to $9,000 to be safe.
Now we’ll add all of this up to determine her family’s need which = $423,500
Now we’ll subtract her assets from the total to determine how much of her family’s need is not covered.
Jane has a life insurance policy through her job which is worth $100,000.
Jane also has $11,000 in her savings account.
$423,500 – $111,000 = $312,500
Now we have done all of the math and we know Jane needs a $312,500 life insurance policy to fully protect her family. Of course not many people want to do all of this math for themselves, so that’s where I come in! I’m more than happy to sit down with anyone and go over their finances to make sure their family is protected. If you have any questions or concerns give us a call today.
