Now that you’ve decided to purchase life insurance, the next question is – how much life insurance should you get? That amount will vary greatly between individuals, but the process of finding out will be the same. By considering the specifics of your financial situation and your financial goals, you can easily determine how much coverage you will need.
Think Of The Costs You Want Your Policy From Secure Insurance Group To Cover
A starting point for determining your life insurance coverage needs from Secure Insurance Group is identifying the expenses you want taken care of after you pass away. As someone purchasing life insurance, you’re likely doing this with your spouse and children in mind.
Common expenses policyholders want taken care of include:
- Mortgages
- Debts
- Funeral costs
- Living expenses
- College tuition
It’s important to note that you can get more than one life insurance policy to address different needs. You may even decide to get a policy that specifically targets one type of expense.
For example, you may just want a policy that will take care of the remaining mortgage balance so that your loved ones will have a place to live. In this case, you can get a decreasing term life policy, where the death benefit will match your outstanding mortgage balance and decrease over time, just like your mortgage will as you continue making payments.
Consider Beneficiaries’ Future Financial Needs When Getting Your Policy From Secure Insurance Group
As time passes, your loved ones’ financial needs will change as they grow. If you have children, you may consider college tuition costs. For an expense like this, you’ll have to take inflation into account. What college costs now may not be what it will cost 10 or 20 years down the road. You’ll also have to consider inflation if you want a policy sizable enough for your loved ones to maintain their current standard of living for a number of years. At Secure Insurance Group, we’ll give you a policy that will help ensure that your coverage will be sufficient years down the road.
Use The DIME Formula
A common piece of advice is to choose a policy that is worth 10 times your annual income. This is the fastest way to choose a policy, but it doesn’t account for the nuances in finances, and what your loved ones will need after you pass away may be much more than your income multiplied by 10.
For a more accurate look into your insurance needs, use the DIME formula. DIME stands for Debts and final expenses, Income, Mortgage, and Education.
Here’s how to apply the DIME formula:
- Calculate your current debts and what your funeral costs will be (the current average cost for a funeral and burial is $7,848)
- Multiply your annual income by the number of years you want your family to be supported
- Determine your outstanding mortgage balance
- Consider the costs your children would have to cover for education. Tuition will be a major part of the overall education costs, but you’ll also need to consider other fees, such as books and other materials needed for certain courses
Once you’ve determined the figures for each, add them up, and that is roughly the amount of coverage you’ll need.
Consider The Investment Returns The Death Benefit Could Yield
You could choose a death benefit based on a conservative investment yield and how its returns could equate to your annual salary. For instance, if you earn $50,000, you can choose a policy worth $250,000 to make it last five years. But, with a million-dollar death benefit, your loved ones could feasibly generate $50,000 a year for a lifetime if they opt to invest in an account that generates 5% annual interest.
This would give your loved ones a reliable replacement for the lost household income resulting from your death, while also serving as a nest egg.
Your Life Insurance, Your Way
At Secure Insurance Group, we will get you the policy that will satisfy your loved ones’ financial needs after you pass away. We will help make sure that you are able to get the proper amount that gives you peace of mind at a price that’s easy on your wallet. We’re always ready to help, and you can reach out to us today at 877-871-7328.
