One of the things you will have to consider when you have decided to buy whole life insurance is the amount of coverage you will require. You will have to do some research before you can answer this question. You will have to take into two main factors into consideration; one is your financial condition at the moment and the other is how the lifestyle of your dependents might be impacted if you are no more. If you have children, then consider their college fees and inflation too while arriving at an answer.
Estimating the amount of whole life insurance you will need
As mentioned by experts, you will need whole life insurance coverage that can assure you an amount which is at least eight times your annual salary. You can also forecast the amount you will earn starting now till the time you retire. Another option is to go in for a coverage that will provide you with money which will help you cover your current debts.
According to the life insurance specialists, conducting the “needs analysis” is the most effective way to decide the amount of coverage you will need. The combination of the short term and long term family needs leaving out the resources available is called “needs analysis”. For optimum results, it is recommended that you do this analysis either once in three years or every time there is an important event that impacts your life like the birth of a child, death or separation.
How to perform the “needs analysis”?
- Your emergency expenses, outstanding debt and financial expenses add up to give you the short term expenses. Funeral, medical and hospital bills qualify as financial expenses while auto loans, credit card dues and loans for college come under outstanding debts.
- The college tuition and mortgage form the long term debts. The most accurate amount for this can probably be obtained by knowing the number of years more for your child to start college and considering the average cost for college in the United States.
- Family maintenance expenses can be calculated by totaling the expenses for travel, utility bills, entertainment, food and child care. Adding this amount to the short term and long term expenses will give you the amount for whole life coverage.
- Evaluate the resources in hand and exclude them from the total cost.
The figure that you now arrive at is what your whole life insurance should cover.
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