How much life insurance do you need? Are you over-insured or under-insured, or do you have just the right amount of insurance? It's a question that we get a lot so we'll try and answer it as easily as we can.
There are a few things to consider that could change your life insurance coverage, like your age, number of kids, your health history, etc. However, there are a few quick rules that will help you. Life insurance for a person should be treated as income replacement. If you were to take a lump sum of money like that to replace your income you would have to follow the history of the stock market, which over the last 75-80 years averages somewhere around 10% per year. So, if you're going to get around 10% a year on your money, you roughly need 10 times your income in death benefit to make that happen, plus the amount of your debts.
Here is an example: Bob makes $60,000 a year. He currently has a mortgage of $200,000, a car loan of $11,000 and two credit cards that total $8,000, totaling $219,000 in debt. So, 10 times his income plus the debts totals $819,000, so that is how much he needs in life insurance death benefit coverage. This is the safe way to secure your family if you were to pass on. For income replacement life insurance like this we always suggest level term life insurance.
Again, your situation in life might be different, so this can be slightly different for you. If your current income is not sufficient to cover your debt, or if you have kids, or if you are older, etc., you will have different plans. If you'd like a customized plan to evaluate your life insurance situation for free, you can send us some information. To get a hold of us, you can follow this blog, follow us on Facebook (search for John Thomas or Total Financial Health), follow us on Twitter @johnnytfh, follow us on Google+ (search for John Thomas) or email us at johnny@johnalanthomas.net.
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