Few people enjoy thinking about the inevitability of death, but it’s important to have measures in place to ensure that your financial dependants are adequately taken care of when you’re gone. When purchasing a life insurance policy, the size is largely based on the amount money your dependants will require upon your death. Determining the amount of life insurance you need depends on the following:
1. Income Replacement: A big factor for life insurance is income replacement, which will be a major factor when determining your life insurance needs. If you are the sole provider for your family or you simply want your family to be able to maintain its current lifestyle upon your death, you need to ensure that that your policy payout is large enough to replace you income.
2. Debt: All of your debts should be paid off in full, including mortgages, car loans, student debt, etc. If you have $20,000 in student loans and a $150,000 mortgage, you will need at least a $170,000 policy to ensure all your debt will be settled.
3. Future Expenses: If you are planning to pay for your children’s university education, you will need to estimate the cost of this obligation and ensure that it is included in your life insurance policy.