Life Insurance – How Much Is Enough?
If a spouse loses a job, you know how much that salary is missed. The person then looks for another job and hopefully the salary is replaced.
But what happens if your spouse dies? The salary is gone along with the loved one. Now what? There may be outstanding debts, like medical expenses not covered by health insurance, house payments, and car payments etc.
The purpose of life insurance is to replace your income should you die. It is still one of the best bargains in insurance today. Under normal circumstances, you will never pay as much for life insurance as your beneficiary will receive.
How much should you buy? If both spouses earn income, then both spouses should be insured. If you cannot afford to insure both wage earners, the primary wage earner should be insured first. The other wage earner can be insured with a less expensive term policy to provide some form of protection. If one spouse works at home, there is still a need for life insurance. The need for child care and housekeeping will still be there and cost money to replace.
To make a decision on how much life insurance to buy, you need to know what goals you have for the proceeds. It is a numbers game. Determine what the values of the following are:
- How much are funeral costs and outstanding debts?
- Will the surviving spouse be able to pay the mortgage without your salary?
- Are there other dependents who count on your income? How much will be needed for food and clothing?
- Can the children count on college?
- What are the continuing costs of owning a home? Think maintenance, insurance, taxes and utilities.
- Childcare if the surviving spouse has to work full time now.
- Retirement savings
Add these things together and that will give you a benchmark for a limit for the primary wage earner. Figure out what percent the secondary wage earner contributes to the family income. Use that percentage times the needed amount to determine what limit should be carried on that spouse.
While there is no clear answer of how much is enough, this plan is at least a starting point. No plan can be devastating.
One other thing, do not rely 100% on what you receive at work in life insurance benefits. If you lose your job you lose your life insurance. Your health conditions and age are the primary determinants in cost of life insurance. It may not be as affordable later as it is now. Contact a life insurance agent to help you choose the right plan. But, go prepared with a little knowledge about how much will be enough.
Tips of the Trade by Mary Roth CPCU