My name is Eric Bowman, and if you have questions about insurance, this is the blog you need to read. I was always confused when I had to purchase insurance. I would either end up paying for insurance I didn't need or I wouldn't buy the right policy. I finally decided that I was going to learn all I could about insurance policies so that I would understand exactly what I was buying. Now, I am completely satisfied with my insurance and the coverage is just what I need. I realized that there are others who are probably just as confused as I was, so I am writing this blog to help others get the best insurance for their needs and budget. I hope that my blog gives you the information you need to make the right choices when purchasing insurance.
If you're looking at life insurance policies because you want to be sure your family gets some money after you die, you may have already seen how many options you have. Not only do you have different terms and types of insurance, but you have a choice of insurance amounts as well. Calculating the insurance amount is something you should approach carefully because this is one of the more crucial aspects of life insurance: Miscalculate the amount, and you could either make it more difficult for your family to survive, or you could end up paying higher premiums than you need to. Here are four situations you need to consider to find a more accurate policy amount.
Your Debts and Estate
For the most part, your family will not personally have to pay your debts after you die unless their names are listed on the debts as well. There are of course exceptions; even if your name was the only one on the mortgage for your house, if your family wants to continue to live there after you die, they'd have to pay the mortgage. But after you die, your estate becomes responsible for the debts that are in your name only. That could make matters much more complicated for your family as they tried to sort out which of your assets they could keep and which would have to be turned over to creditors.
An easier solution would be to have at least enough life insurance so that the beneficiaries could simply pay off the bills once the policy pays out. So the amounts of all your debts should form part of the policy amount.
How Hard It Would Be to Maintain Short- and Long-Term Finances
Your death will likely create a bump in the road for your family's short-term finances as they try to cover funeral costs and time off work for mourning, but it could also create a long-term crevasse in their budget if you contributed significantly to household income. At the very least, including enough money to supplement the family's income for a few months is a good idea. If you were the main breadwinner, consider increasing the policy to cover a few years' worth of your salary.
Another issue is whether your family has other income, other than jobs. If you have annuities that are just sitting and that have not yet started paying out -- and they have a death benefit -- you might not need as much life insurance.
If your family has any special needs, from members who need special care or education to people who may need to enter an assisted living facility soon, factor those costs into the life insurance amount. You want your family to essentially continue their basic lives and have support for their needs after you die. If anyone needs special care now, your death could make a mess of that situation unless you have a financial cushion for people to fall back on.
If you want help calculating how much life insurance you'll need, talk to both the agent helping you and the life insurance company's customer service department. They will be able to find out what specific factors are at work in your family's life so you can plan accordingly.