Life Insurance Series Part Three: Calculating Your Life Insurance Needs
By Joe Globensky, RFC®
September has been deemed Life Insurance Awareness Month and, given the various questions we receive on life insurance, we thought we would conclude our informational series on life insurance by looking at ways to calculate your life insurance needs. Whether you are exploring your potential need for insurance, trying to determine the type of insurance that may be appropriate for your situation, or you already have life insurance but either don’t know why or if it still makes sense, you may find the answers in this series.
So you have determined you have a need for insurance, and you have selected the one or two types of insurance that may make sense, now you have to figure out the appropriate coverage amount to purchase. It may vary based on your financial circumstances, but here we will review the expenses that insurance can fund, and that should be accounted for in your calculations.
These are the expenses that your loved ones may have to cover shortly after your death. These include things like funeral costs and debts such as your mortgage, car loan, and credit cards. If your family’s emergency fund is not adequate to cover these expenses without you, by how much would it fall short? Include this figure in your calculation.
There will be ongoing expenses to cover after you are gone. These may include food, housing, utilities, transportation, health care, clothing, insurance, and taxes. Your spouse may work and have income to cover some of these, but without your income, there may be a need for additional income. Calculate the amount and multiply by the number of years this income will be needed.
If you have children, it may be your goal that they receive a good education which may mean private school, a university, and maybe even an advanced degree. You and your spouse may have special plans on how to spend your retirement years. The estimated cost of these plans should be included in your calculation of insurance needs.
There are numerous resources you can turn to for assistance with this calculation. Many of them are online. Just remember, online calculators are no substitute for the advice you will get from a qualified professional, who can conduct a thorough analysis of your needs, and then help you determine the right amount and type of life insurance in order to protect the ones you love.
About Connections Financial Advisors
Connections Financial Advisors is a comprehensive wealth management firm utilizing an ensemble practice methodology to provide its clients with the highest level of service. The firm offers a broad array of financial services, including retirement planning, tax planning, estate planning, risk management, education funding, investment management, employee and executive benefits.
This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. Guarantees are based on the claims paying ability of the issuing company.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Level Four Advisory Services, LLC, a registered investment adviser. Connections Financial Advisors and Level Four Wealth Management are separate entities from LPL Financial.
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