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How Much Life Insurance Do You REALLY Need?
You already know you need life insurance. Whether it’s for your business, spouse, children, etc — you want to make sure they’re cared for if something happens to take you out of the picture. As insurance agents and advertising fling numbers at you, you may be tempted to take the biggest number that you can find. Fortunately, determining how much you actually need is pretty easy.
Calculating How Much Coverage You Need
Determining the amount of coverage you need in a life insurance policy isn’t a subjective opinion, but a carefully plotted mathematical equation. To begin, you need to determine who you’re seeking to aid with the coverage, following your passing. Usually, you’re attempting to provide for an individual who relies on you for financial responsibility.
The key is to determine how much your partner or dependant needs per year for the rest of his or her life. That sum is then multiplied by 25 to arrive at the total sum of coverage you’ll need for your partner. Your life insurance policy won’t be the only source of income you’ll be leaving for your partner. It’s important to remember to include savings accounts, retirement accounts, investments, and pensions.
An example might be a person who needs to leave $2.5 million for his partner. If other savings and investments can provide $1 million, the insurance will have to cover $1.5 million. This will ensure he will be leaving his partner enough money to help her live out her remaining years in a financially stable manner. Together, the complete $2.5 million will give his partner a yearly income of $100,000.
The Benefit of Selling Your Life Insurance Policy
Alternatively, many older adults are joining the trend of selling their life insurance policies for cash. The money is then used to pay for retirement expenses and medical care in cases where the individual or a partner has been diagnosed with a terminal illness. This is called a “life settlement” and is done by selling one’s policy to an insurance company other than the one from which they originally bought the policy.
The money received by selling the policy in this manner is more than the individual would receive, if they were to cancel the policy outright. The sum will be lower than the death benefit, however, so individuals thinking about this should be aware of that consequence. The deal can either be arranged through a life settlement broker, or it can be initiated directly with an insurance company that provides life settlement services. It will be necessary to provide copies of your insurance policy and your medical records, so the life settlement provider can determine the worth of your policy.
As the needs of older adults change and people live longer, more options for retirement and life insurance coverage become available. Determining your needs and those of your partner are essential to choosing the best coverage and how best to handle that coverage.