Are you starting to shop around for insurance policies? Maybe you’re newly married and are starting to think about starting a family. Suddenly, your list of responsibilities are growing and more and more people are depending on your income. If something should happen to you and you didn’t have a life insurance policy, all those people you love would be having a very rough time surviving. You certainly don’t want that do you? So, let’s make sure we sign up for enough insurance. How much life insurance does one need though? It really depends on your lifestyle and if you have a family, but its always best to talk to an insurance broker about how much life insurance to get.
What are Your Current Debts?
How many debts do you have right now? Do you have a home mortgage? Student loans? Car loans? Credit card debt? Add up all of your debts and come up with a number. For many, this debt amount would total up to over $150,000, and they don’t want their significant other worrying about those debts if they pass away. If you’d rather that your spouse live a debt free life once you’re gone, then you’ll most likely want your policy to be set up for at least the amount of your total debts.
How Much Are Your Yearly Expenses?
It’s pretty easy to figure out what your yearly income is, but do you know what it costs to live for an entire year? If you don’t keep a detailed Excel file with your reoccurring expenses each month, then just head over to your bank’s website and check your spending habits for the past few months. With this, you should be able to get a pretty good idea of what it costs to survive over the course of a year.
As a rule of thumb, if you have a spouse and/or kids, you’ll want them to be stable for at least 10 years without having to worry about surviving the day to day life. If you give them 10 years’ worth of income, I bet they would have enough time to figure out how to get through life once the time came where they had to earn an income on their own.
So here’s the very simple equation for deciding how much your total payout should be for your life insurance policy (some of you may have already figured it out it’s so simple). Take your total debts and add ten years’ worth of expenses to that number. This is my general rule of thumb for how much you should have on your policy.
So, let’s say your debts are $150,000 and your yearly expenses are $35,000. Ten years of expenses would put you at $350,000, then add the total debt amount and your grand total is $500,000. If you get a policy that pays out $500k, then your spouse and your family should be able to survive without any trouble. It’s what you would want if you passed away right?
Should Your Spouse Have a Policy?
There’s no doubt that you’re the breadwinner in the household, but what if your spouse passed away? Do you think that you would need any additional money to survive?
Many men might think, “Of course I don’t need any money if my spouse passed away. After all, she’s a stay at home mom. She doesn’t even earn an income.” If you’ve got kids though, your mindset is completely wrong! Think about it. What would you do if she was gone and could no longer take care of the kids? You still have to go to work, so you can’t go home. Guess what? Now you’re going to have to pay for a daycare service day in and day out. This could easily cost you $10,000 a year. Turns out your wife was more valuable than you thought huh? If your spouse passed away and it would cost you more in life since they weren’t around, then you most likely want to take out a life insurance policy on their life as well.
What About Your Kids?
Some insurance agents try to sell you a policy for your children. Think about it though, is this really necessary? Do they currently contribute to your family income? Most likely not. Will your expenses go up if they were gone? Again, most likely not. There is absolutely no reason that you should have an insurance policy on your children.