This is a question I get most often – and it really is the starting point of any life insurance discussion. How much life insurance do I really need? Well, that depends on what stage of life you are at. For example, if you are a young couple with a small family and a mortgage and car payments, some consumer debt then you are going to have a much different need compared to someone in their 60’s or 70’s, who’s family are all independent and are looking to cover basic funeral and last expenses.
When we look at determining the need, we look at Immediate Cash Needs and Continuing Income Needs. Immediate Cash Needs are things like: funeral costs, terminal income tax returns, legal fees, outstanding debts (can include mortgages), future education costs for children and an emergency fund. The Continuing Income Needs takes into account the income you currently earn that stops upon death and how much of that income your family will continue to need and for how many years. This one can be a little more tricky because it is dependent upon a number of different factors such as the ages of your children (daycare costs, before and after school programs) and if your spouse works outside the home and their ability to earn an income. Let’s not forget the stay at home parent – they too provide a critical role in the family finances and the cost of replacing them (live in nanny’s, daycare programs, meal preparation, etc.) can really add up.
Often when determining Life Insurance Need it is best to consult a professional to make sure you have everything you want covered in the event of your early demise. Need always gets looked at first, then you can start building the plan of insurance for you that suits your budget and time frame.