How can I determine the right amount of life insurance to buy?
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Asked July 10, 2015
Life insurance is meant to provide for your beneficiaries after you pass away. The amount of coverage you need varies from one person to another, and can be affected by many different factors. Insurance experts suggest methods to get an approximate necessary amount, but the potential of life insurance extends far beyond necessities.
If your only concern is caring for your loved ones, the decision is slightly easier. Calculate your family's annual expenses, and multiply that number by how many years you want to provide financial aid. Add 5 percent of this amount back into the amount to account for inflation, and you have a basic estimate of how much life insurance you need.
If you have children who may want to go to college, you can purchase term life policies to supplement your permanent coverage for that purpose. Term life policies are best used for goals or obligations, including mortgages and loans that have a specific future end-date. The same amount can be added to your permanent life insurance, but it can be a mistake to try and predict what you will need in the future.
If you have a loved one with special needs, be sure that you have completely calculated the expenses involved. Transportation, food, medical care and facilities are a few long term needs, but others might include housing, specialized treatment, or even eventual interment. The more you are able to fit into your permanent life insurance policy, the less financial strain your loved ones will suffer without you.
With your needs covered under a permanent life insurance policy, you can add term life policies or additional permanent policies to cover your desires. It is not unusual for someone to name a pet or organization as beneficiary, so you could make sure your favorite cat is well-tended for life, create a trust fund for your favorite cause, or make a post-humus donation to the charities of your choice.
Answered July 21, 2015 by Anonymous