With life insurance rates as diverse as they are, determining the perfect amount of coverage is more difficult than ever. In this economic climate, some families are targeting life insurance rates as a way to bring down overall costs. Yet, many experts are warning against such large-scale budget cuts because the risks to families have not changed. If anything, investing more in your policy is warranted because of the greater financial risk to your loved ones. Finding a job is more difficult and wages are lower; therefore, paying higher life insurance rates now can provide a safeguard during difficult times later. Finding the ideal amount of coverage is possible with some preparation and planning.
Determining The Amount Of Income Lost
When individuals suddenly find themselves unable to provide for their spouse and children, it is only natural to assume that they will need the same funds that they were bringing in before the unforeseen circumstances. That is exactly what a policy will provide, as long as the life insurance rates and coverage reflect this amount. As a general rule, individuals will underestimate the contribution they make to family finances. Even primary breadwinners shouldn’t assume that funds are the only thing a family requires to survive. Consider the numerous other problems that they would face and compensate accordingly.
This task is particularly important for single parents and stay-at-home parents. These demographics both tend to drastically underestimate the amount they contribute to the family, and thus select life insurance rates that are too low to cover their real value as a result. Both should remember that they contribute far more than just finances to the household, and that their loss would be devastating.
Noting The Assets Left Behind
Income is not the only benefit that will pass on to the family in the event of an individual’s demise. In addition, there are assets which can help offset a family’s needs as they adjust to life without their loved one. However, remember that many assets are not held outright for several years after their purchase. A home may technically be in a person’s possession, but if that person is still paying a mortgage, their family does not necessarily have the right to remain there. There are specific policies used to pay off a mortgage specifically, ensuring that the house will be secure. Of course, there will also be assets which are paid off and can be considered to pass straight on to the family. Be certain to account for costs due to delays in processing of wills and other potential pitfalls as well.
Tally All Debts
Debts can be a major problem when considering life insurance rates. Debt is often hard to calculate in its fullest because it is difficult to remember how much debt an individual has accumulated, and how much might be accrued over the next 20 years or more. Generally, when calculating debt, it is advisable to pay higher life insurance rates for a more extensive coverage. If one doesn’t have enough life insurance, the life insurance rates one pays may not result in enough benefit to the beneficiary.
Don’t Leave Out Expenses
The best way to determine total expenses is by looking at monthly credit card payments, debits, withdrawals, and checks. Tally all these expenses up for the past several months (or use an online program to do it automatically) to gain an accurate picture of total monthly expenditures. Be sure you get information from every account held and try not to omit anything. Even so, most experts advise overestimating your expenses. As with other aspects of coverage, it is better to pay life insurance rates higher than the bare minimum necessary rather than ending up shortchanging family and loved ones.
Provide For Your Children
Upon losing a parent, children are often placed in a difficult situation
– both emotionally and financially. . Help ease their burden by providing enough coverage so that their lives are not strongly affected in any other way. Providing enough to keep the mortgage paid ensures that they can keep their home, and selecting enough coverage for their education ensures that they don’t have to change schools and can continue to receive a great education. Providing a college fund ensures that they will never face the reality of not being able to afford school.
Understanding how much life insurance to buy can play a key role in adequate coverage for a family during economic hardships as well as an unforeseen loss.
SEEK INDEPENDENT ADVICE. All information expressed in this article is intended to be general information only. You should not rely upon this general information to make legal, tax, investment, estate or financial planning decisions. No portion of this article is intended to nor does it provide legal, tax, investment, estate or financial planning advice. For this type of advice, you must consult an independent advisor.
Chris Harmen writes for Wholesale Insurance, providers of low cost life insurance rates. Wholesale Insurance makes applying for life insurance easy by helping clients understand how much coverage they need.