So many individuals take out a life insurance policy without taking the time to properly calculate their needs. Of course, doing this can have serious consequences for both ourselves and our loved ones. Life insurance is designed to ensure our loved ones can meet all financial obligations in the event of our passing, so it’s pretty important to get it right. Today, we’re going to cover the basics of what you should be looking into before taking out or reviewing your life insurance policy.
Variables You Must Consider
Life insurance policies are not a one-size-fits-all purchase. Everyone has unique needs, so it is essential to look into yours before taking it out. Factors everyone should consider are their age, income, health, family size, and debt, but you should also look into your personal goals, such as educational expenses and how you expect your income to grow. Calculating everything will ensure your benefit amount is much more likely to cover all financial demands your dependents are likely to encounter.
Current and Future Debt
A good place to start is by listing all your current debts. It’s crucial to include everything from finance purchases to your mortgage. Then, take some time to look at where you expect your debt level to be in the future. If you expect to invest in more property or a business, it is likely to rise, and these are obligations that need to be taken care of in the event of your passing.
Cost of Living
Life insurance payouts are designed to replace a missing income for a certain number of years in the event of your passing. As well as paying off your debt, it’s vital to give your loved ones enough to support their lifestyle. Most people opt for five to fifteen years of their current income. Being accurate about how much your family needs will also reduce the premiums you pay now.
Future Educational Costs
If you’ve got children, education will play a huge factor in how much you need from your policy. University isn’t cheap, so look into the projected educational costs throughout the term of your policy and ensure there will be enough money for them to pursue their academic goals without financial barriers.
Other Financial Obligations
Other financial obligations you might want to consider include childcare, elderly care, taxes, and funeral costs. If you’re going to take out a life insurance policy, it is certainly worth ensuring everyone you care about is taken care of.
The Benefits of Properly Calculating Your Life Insurance Needs
Taking the time to accurately calculate how much your loved ones need from your life insurance policy can make all the difference. Whether you want to leave your loved ones a gift, pay off your mortgage, or cover educational costs, life insurance can provide long-lasting protection against financial hardship during very difficult times. By doing the maths, you’ll be making sure that you’re not under- or over-insured, and you’re not paying more than you need to. If you plan on taking out a new policy or reviewing your existing one, ensure it is well calculated.
