Calculating Your Life Insurance Needs
While life insurance can serve a variety of purposes, one of the most common is to maintain your family’s standard of living in case you die. Thus, you need to purchase an appropriate amount of insurance to ensure your family is adequately protected. Many rules of thumb exist, such as five to seven times your annual income, but don’t rely on rules of thumb to determine your coverage. These rules don’t take into account your individual circumstances, so they could leave you with an inadequate amount of insurance. Your insurance needs will probably change over time. When you are a young, single adult, you may have little reason to purchase life insurance. As you start a family, your insurance needs will be greater, since other family members are depending on your income. As your children become independent, your insurance needs may decline. However, at that point, you may need life insurance for other purposes, such as to help fund estate taxes or for a business buyout. To determine how much insurance you need, consider these questions: What lifestyle do you want to provide for your spouse and dependents after your death? Review your needs in detail, taking a look at things like:
Do you want to provide the same standard of living, including things like vacations and club memberships? Will your spouse and children live in the same house?
Will the family need to make different child-care arrangements?
Do you want to provide for college educations for your children?
If your spouse doesn’t work, do you want that to continue, or do you expect him/her to work after your death? If you expect your spouse to work, what is a reasonable amount of income to expect him/her to earn?
Do you need to consider the support of elderly parents or other relatives?
How long must your family live off the insurance proceeds? Will your current retirement fund provide enough income for your spouse to live on after retirement or do you need to provide income until his/her death?
Do you want to pay off a mortgage or other debt with insurance proceeds?
Do you have estate-tax considerations you want to address with life insurance?
How much will that lifestyle cost? Come up with an estimate of how much this lifestyle will cost. Include all of your current expenses that would remain the same, as well as any new expenses you have identified, such as child care. Remember to factor in hidden costs, such as providing for health insurance that was paid for by your employer. For large debts, such as a mortgage, determine whether it makes sense to pay the loan off in full or to continue making monthly payments. How much life insurance do you need? First, consider what other income sources your spouse and/or dependents will have. This could include your spouse’s earnings, retirement plans, Social Security, savings, and investments. Life insurance proceeds will be needed to provide the difference.
Representative is registered with and offers only securities and advisory services through PlanMember Securities Corporation, a registered broker/dealer, investment advisor and member FINRA/SIPC. 6187 Carpinteria Avenue, Carpinteria CA. 93013, (800) 874-6910. Randall Wealth Management Group and PlanMember Securities Corporation are independently owned and operated. PSEC is not responsible or liable for ancillary products or services offered by Randall Wealth Management Group or this representative. CA Insurance License: #0727953.
This newsletter was prepared by Integrated Concepts Group, Inc. The opinions expressed in this newsletter are for general information only and are not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. The views expressed are those of the author and may not necessarily reflect those held by PlanMember Securities Corporation. Material presented is believed to be from a reliable sources and PSEC makes no representation as to it accuracy or completeness.