The amounts of life insurance coverage you need will depend on your family situation, assets, and expenses. though, deciding what the right amount is for you and your family can be confusing. You will find that insurance agents and authorized websites give different and intense tips for which calculation to use. Here are three of the necessary computations for deciding how much life insurance coverage to buy. Use the one that makes the most sense to you and your family’s needs.
The mortgage formula
With this formula, you consider the mortgage of the home and the current working status of each parent. For a full-time parent, you want life insurance coverage that is twice the amount owed on the home mortgage. For example, if the mortgage was $250,000, you would wish to at least $500,000 for each working parent. This way, if one of the parents passes, the mortgage is paid, and there is extra money.
If a parent doesn’t work outside the home, they may only need half that amount for the unworking parent. In the example above, this would be $250,000. The idea is that the surviving parent has a full-time job that can pay off the mortgage, and the extra money from the insurance policy will be used for daycare and other child-rearing expenses.
Revenue replacement formula
With this simple formula, the gross annual salary is multiplied by a minimum of ten years up to the number of years you have until retirement. If you earn $50,000, are 30 years old, and plan to retire at the age of 65, then you will need a policy that pays between 0.5 to 1.75 million upon your death.
Line item formula
Some insurance experts feel that scoring and adding up all the waiting expenses is the most accurate formula, but it will take some time to calculate. It’s a precise calculation of the necessary fees your family would need for life in case you die today.
To make this calculation, it requires to add up the expected expenses such as mortgage payments, daily living expenses, university, child care, doctor, and any other predictable expenses in the coming decades.
An insurance agent can work with you on different formulas to determine how much insurance needed. You may also need to consider how much you can pay per month for life insurance premiums. The more coverage you get, the higher the monthly or annual premiums.