Wednesday, May 23, 2012

How Much Life Insurance Do You Need?

Do you need 5 times your income? Or should you buy 10 times your income?

In my experience, if you ask stupid questions you tend to get stupid answers.

The real question you should be asking yourself is... If I die tomorrow, what do I want financially for the loved ones I will leave behind?

Will your spouse need an income? How much? For how long?
If so, how much money does it take today to provide that amount of income?
What assets do I have to help offset that number?
Are there any debts that must be paid off?
Will your kids need money to pay for college?
Is there a parent or another family member that depends on you?
Do you want to leave money to your church or Alma Mater?

Once you know the answers to the above questions, work with a qualified, unbiased professional like a Fee-Only Certified Financial Planner who can help you determine the correct amount of life insurance you really need.

Don't use rules of thumb to plan your financial life! Here's why:

Let's assume you die tomorrow, and you need to replace your current income of $50,000 for the next 20 years to allow your husband/wife and kids to keep their same lifestyle without having to struggle. If you used the "rule of thumb" of 10 times your income when you bought your life insurance, your surviving spouse and kids will most likely run out of money in 15 years or less. Feel free to email me and I would be happy to send you the hard data.

Get a real financial plan! Work with a CFP!

In my next post I will discuss what type of life insurance to buy.

1 comment:

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