Life insurance is something that has been largely misunderstood and misinterpreted by the general public.
It is a very intimidating thing to shop for and purchase, but everyone knows in the back of their mind the importance of such a policy.
The life insurance industry has changed dramatically in recent years, and new products and types of policies are developed and introduced on what seems like a daily basis.
This can all be a bit overwhelming for a first time life insurance buyer to take in and understand.
But although it may seem very overwhelming at first, once you get a handle on the different types of policies that are available for consumers, everything else seems to fall into place.
Once you have done your sufficient research and determined the type of policy that will best suit your needs and wants for both the present and future, you need to take the next step in purchasing a life insurance policy.
This next step is determining the amount of coverage you need to take out in order to provide completely for your beneficiaries.
A recent article from Austin Childs of The Gosline Insurance Group Pease Insurance Agency, and posted on Villagesoup.com, “Learn about life insurance – Part 2: How much life insurance do I need?” discusses how to determine the amount of coverage that is appropriate for your specific circumstance.
The one thing that people need to keep in mind is that there is no “magic” number for how much life insurance you need to purchase. Everyone’s situation is different, so you should only look at your own personal and financial situation when determining a coverage amount.
“If you have dependents, buy enough life insurance so that, when combined with other sources of income, it will replace the income you now generate for them, plus enough to offset any additional expenses they will incur to replace services you provide (for a simple example, if you do your own taxes, the survivors might have to hire a professional tax preparer).”
“Also, your family might need extra money to make some changes after you die. For example, they may want to relocate, or your spouse may need to go back to school to be in a better position to help support the family.”
You should also factor in any other “hidden income” into your coverage amount. This includes things such as a 401 (k), or any other forms of additional income that you generate that your family depends on.
Industry insiders have always said people should look at their current salary in terms of how much coverage they need; but not just one year’s worth of income.
“Many pundits recommend buying life insurance equal to a multiple of your salary. For example, one financial advice columnist recommends buying insurance equal to 20 times your salary before taxes. She chose 20 because, if the benefit is invested in bonds that pay 5 percent interest, it would produce an amount equal to your salary at death, so the survivors could live off the interest and wouldn’t have to ‘invade’ the principal.”
This is a good guideline to follow to give you a ballpark figure on how much coverage you need. After all, it is always better to be over-insured than under-insured.
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