How much Term Life Insurance do I need?
Here is a simple checklist to reference when you ask yourself ‘how much term life insurance do i need?’
1) Outstanding debt:
Consider the total amount you owe on your home, the amount you owe in student loans, credit card debt, car loans, etc.
2) Educational expenses:
Consider how much you would want to set aside for each of your children’s future educational expenses
3) Income replacement:
Consider the amount your surviving spouse would need to replace the income lost if you were to die.
4) Final expenses:
Consider an amount for your funeral bills, potential hospital or doctor bills, legal bills, taxes, etc.
Add up the totals amounts from each category (Outstanding Debt, Educational Expenses, Income Replacement, Final Expenses) to derive at an accurate amount of insurance for your personal needs.
Here is an example:
John (age 35) and Susan (age 34) are husband and wife with two children.
They have a mortgage of $300,000 and other outstanding debt of $50,000. ($300,000+$50,000=$350,000 total)
They have decided that they would like to have $100,000 set aside for each child’s future education ($100,000+$100,000=$200,000 total).
John’s Income Replacement Amount:
John has an annual income of $60,000 *after taxes*. Assuming retirement age at 65, John has 30 working years remaining. Assuming John’s income remains the same, John is scheduled to make ($60,000 * 30 years) or $1,800,000 over the 30 year period.
Susan’s Income Replacement Amount:
Susan makes $65,000 a year *after taxes*. Assuming retirement age at 65, Susan has 31 working years remaining. Assuming Susan’s income remains the same, Susan is scheduled to make ($65,000 * 31) or $2,015,000 over the 31 year period.
John and Susan each would like a benefit of $20,000 in order to pay for funeral bills, potential hospital or doctor bills, legal bills, taxes, etc.
Adding up the totals from each category derives an adequate amount of insurance for John and Susan to purchase.
John will buy a policy with a death benefit of ($350,000 + $200,000 + $1,800,000 + $20,000) = $2,370,000 and name Susan as the primary beneficiary. Also, John will name the children as the secondary beneficiaries so that if Susan is no longer alive the children will obtain the benefit.
Susan will buy a policy with a death benefit of ($350,000 + $200,000 + $2,015,000 + $20,000) = $2,585,000 and name John as the primary beneficiary. Also, Susan will name the children as the secondary beneficiaries so that if John is no longer alive the children will obtain the benefit.
Keep in mind that the amount of insurance that you want to purchase is always up to you. Furthermore, replacing one’s entire income in the event of death is not always necessary or possible. However, to go completely without life insurance when you have loved one’s that depend on you is a mistake. Life Insurance is a vital part of a good financial plan and even a relatively small amount can be beneficial in the event of the unexpected.
At Secure Term Insurance we offer free quotes and personalized service with step by step guidance throughout the application process, underwriting process, and any assistance you may need thereafter.