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How much Life Insurance is right for you?

 

How much coverage should you own personally, not counting group term coverage? With so many people frequently changing jobs these days, many are learning that owning and controlling their own life insurance policy has many important advantages. In addition they are often surprised to learn that they have been significantly underinsured.

 

Traditionally, individuals tend to buy life insurance in round numbers — such as $100,000, $250,000 or $500,000 — or using the general rule of purchasing 8-10 times their household income. Few actually try to determine the correct amount to purchase. While doing so is a relatively simple process, it can be uncomfortable for some because it involves thinking about death. Given the importance of this issue to survivors, the best solution is to move beyond that discomfort and plan accordingly.

 

Determining What You’ll Need

 

Consider family needs within the first few months of your death. Funeral expenses, administrative costs and other immediate expenses can be shocking. In addition, clearing up unpaid bills or revolving debt like credit cards or consumer loans is often necessary.

 

Determine how much will be required to pay off any remaining mortgage balance on your primary residence.

 

Providing an education fund for your children is also critical. There are many schools of thought regarding this, but you must consider how much money you would like to see allocated for your children’s education in case of your death.

 

The final issue is often the largest — income replacement. If you have taken care of the above-mentioned needs, most studies indicate that a typical family can maintain its standard of living on 60-75 percent of pre-death household income. While it is a personal choice, you must consider whether the beneficiary will live off the principal paid by the policy or the income it generates through investments. It is also important to consider the length of time this money will cover. Most families decide that this should last at least until your children are out of college.