How to Determine the Life Insurance Coverage You Need

Being an adult has it’s ups and downs. On the upside you enjoy way more freedom, have better control of your life, and get to do what you want to do with it. Of course, as all adults also know, these upside is also the cause of all the downsides.

The freedom entitled to you entails responsibilities, the control in life you have means you have to be at the top of every aspect of it which could burn you out if not managed properly, and the power to be able to do anything with your life necessitates that you be liable to what happens to you and your loved ones until the day you die. Life is truly unexpected because of this and humans have created a way to ease the consequences of dying: through life insurance.

A life insurance serves as a protection from unexpected events. In case of death of the insured, his or her family is shielded from the financial damages that your passing away will cause. Getting a life insurance is somewhat a common thing for adults and determining how much your life insurance should be can be daunting. We are here to help. Here are ways to determine the life insurance coverage that you need.

The Rule of Thumb Method

This is perhaps the most common among the methods of determining the life insurance you need because it’s simple and easy. It’s in the name, really. The rule of thumb is to multiply your annual income by the 5-10 times. It does prove inaccurate but for the most part, it produces a range that is most appropriate to your lifestyle.

The Actual Needs Method

This is the next most used method of determining life insurance coverage. It’s more comprehensive and therefore more complicated to calculate but ultimately, it is more accurate than the rule of thumb. Using the data of your inflows, expenses, and debts into a master sheet similar to budgeting and balancing sheets. The resulting amount is the initial life insurance coverage. It must be able to pay your debts including mortgages, future expenses, college education for your kids, etc. But it doesn’t end there, you also have to total your expenses for the next 5-10 years and add that to your current total. That’s how much life insurance coverage you’ll need.

The Standard Living Method

Last and the least common is the standard living method. Here, you compute for the financial needs of the beneficiaries that will sustain their current lifestyle. Then, multiply the resulting number by 20. It can be costly but it’s also the most comfortable among the methods. The idea is that the beneficiaries can withdraw 5% of the death benefits yearly and also invest the death benefit principal and earn 5% or more.

Life is truly an uncertain thing and everyone should be ready for any circumstance.