“I have life insurance at work.” That’s the number one response I receive when I ask customers about their life insurance needs.
It’s true that many companies today provide some amount of life insurance, but usually it’s one or two times the employee’s annual income. Many people think that’s plenty of coverage; however, when they consider that their family will permanently be without their income, that paints a completely different picture. Here are five of the most important things to consider when determining the amount of life insurance coverage you need:
- Burial/Final Expense Coverage: Just like it sounds, this is the total price to handle the final expenses of either your burial or cremation. This is the first expense survivors will experience when we pass. That’s not all, however: most people I speak with do not have a will, so they will likely have other expenses like probate or attorney fees to handle even the simplest estate.
- Debt Liquidation: Have you ever calculated how much debt, other than your home or rent, that you actually owe? Often times this exercise will surprise you. Having enough life insurance to pay off your debt will make sure that your loved ones aren’t left stressing over their ability to pay for those things we enjoy today.
- Home or Rent Coverage: This coverage ensures that your current home is paid off or at least that the mortgage is paid for a certain number of years. Often times those who rent leave enough funds in their life insurance plan to allow their surviving partner to purchase a house. This security is a major comfort to those left behind. No one wants to be forced out of their home due to their inability to pay after their partner passes.
- Emergency Fund: Having six months of income in the bank is always a smart decision for anyone. This is especially crucial for surviving partners because mechanical breakdowns don’t care that you have faced a rough patch in your life. How many of us have thought in our lifetime, “I can’t believe that broke now!”? Maybe you are really good at negotiating rates and following through on maintenance issues, but if you were not here, would you say the same about your partner?
- Spousal Support: Let’s face it, we all are used to a certain standard of living. Very few of us ever want to go backward in life. Leaving enough life insurance to replace your net income for a certain number of years protects your surviving partner with the ability to keep that standard. If your family has kids, it isn’t likely that activities like sports will cease in the long term. And if you pass suddenly, counseling may be needed for surviving family members to handle the grieving process. It is often a good idea to leave an amount equal to your net income for a certain number of years for protection.
I can help you with these numbers and ascertaining if you truly have enough coverage through your job. Often times not only is it not enough, but relying on it to take care of your significant other will leave them in a precarious situation. That doesn’t have to occur.