If you have a young family, it makes sense to buy coverage that is worth at least 10 times your gross annual income. Term insurance is often the best choice for young families on a tight budget because the policy allows one to purchase the most coverage at the lowest initial premium.
When purchasing life insurance, the most important step is determining how much coverage you need. There is no single rule of thumb when it comes to purchasing life insurance because financial circumstances and goals differ per individual.
Do you need a life insurance coverage of $250,000, $500,000, $1 million, or even more? That may sound like a lot of money but keep in mind this money will be used to protect your family’s financial future if you are not there. This money can be used to finance the funeral, a mortgage, and outstanding credit card balances while also supporting your loved ones’ quality of life for many years to come.
In order to determine the amount of coverage you need you should calculate how much money your loved ones would need in order to meet their immediate, ongoing, and future financial obligations if you were to suddenly pass.
After you have made this calculation, compile the resources your family members might draw from in order to support themselves. Resources might include a spouse’s income, accumulated savings, life insurance you may already own, etc.
The difference between these two sums is the minimum amount of life insurance you need.
This formula may seem quite simple but providing all the inputs can become difficult. Additionally, you will also need to factor in the effects of inflation and predict the earnings of your investments over the long run.
Fortunately, life advisors at Sproutt insurance can conduct a thorough analysis of your needs, helping you determine the right coverage needed to protect the ones you love. Since Sproutt isn’t affiliated with any insurance carrier, you can be assured that our personalized recommendations are unbiased.