Am I required to buy a certain amount of life insurance?
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Asked September 23, 2013
Unlike car insurance, which has specific requirements, and home insurance with its home value requirement, there is no specific dollar amount that anyone should have for life insurance. The idea is that you should use life insurance to protect your family and property in the event of your death, and the amount of the policy should reflect that.
One of the primary concerns for life insurance should be to pay off your debts so that they will not fall on your surviving family. This includes your mortgage, car loans, and any other debt you have incurred during your life. Next, calculate the living expenses of your family for an entire year, including everything from food and clothing to driving and insurance. Multiple that number by 5, then add 5% of that amount back into itself. This gives you a rough estimate of the cost of supporting your family for 5 years, including a 5% inflation rate. This should be your basic permanent life insurance policy.
You can also set up life insurance to pay into a charity or other organization. This can be included in your primary policy or purchased as a separate policy. Since there is no limit to the number of beneficiaries in a single policy, many people find it easier to consolidate their desires into one policy rather than having keep track of many different ones.
There is no specific amount of insurance you need, but it is important that you calculate all of the possible needs of your family and your own final desires carefully. You might also consider setting up a trust fund to receive the proceeds and then dole them out periodically to help manage them more efficiently. As long as you are comfortable that you have met the needs of your survivors, there is no requirement for life insurance other than the fact that everyone should have it.
Answered September 23, 2013 by Anonymous