As someone with children, how much life insurance should I buy?
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Asked January 9, 2016
The amount of life insurance you need will depend on a lot of variables. Where the kids are concerned, you'll have to look at the ages of the children and how long they may need to be cared for. This includes such things as paying the mortgage, the monthly utilities, and providing for food, clothing and any special needs the children have. There is no cut-and-dried amount that everyone should have, or even any agreement on the type of policies you should own, but here is a quick description of some things you should consider.
Term life policies are best used for things that have a definite expiration. The home mortgage and any other ongoing family debts would be good examples of this type of financial need. Next, term life policies are also excellent for making sure that college tuition will be available for your children. Since you know that the children will either be enrolled in college by a certain age or will have chosen to forego higher education for a time, you can estimate specific ages for the children and purchase term life policies to match those ages.
Most people do not need multiple permanent life policies, but some do. When calculating a policy of this type, look at the total monthly expenses of the family. From there, multiply the monthly expense by the number of years you want to provide for your family. If any of your dependents have special needs, calculate the annual cost of those needs and multiply it by the number of years you want to provide coverage for. Add the two totals together and then add 5% back to the new total to allocate for inflation. This is the basic amount of life insurance you should have to fully care for your family for a specific number of years.
Next, you need to plan for your funeral. Be sure to add enough value to your life insurance policy to cover your final expenses and interment. This way, you avoid your family having to use the funds you have set aside for them, and relieve the financial burden of your passing.
To protect the proceeds of your policy, it might be a good idea to name a trust fund as the beneficiary. By setting the policies up to pay in trusts, you avoid estate taxation on the proceeds and make sure that your family, not the government, is able to use the money after your death.
Answered January 21, 2016 by Anonymous