Talking about life insurance is often an awkward and difficult conversation that most people naturally look to avoid. It means facing the hard truth that one day you or someone you love won’t be here. However, keeping that in mind should serve as motivation to provide a certain level of security and comfort to those we left behind. That makes the process of calculating the correct amount of life insurance you need one of the most important decisions you can make.
Understanding the Basics of Life Insurance
One of the first steps of calculating life insurance is understanding a few of the basic types of life insurance available to purchase. Let’s take a look at those options and which ones might be best for your specific needs.
The Different Types of Life Insurance Policies
Term Life Insurance
Term life insurance policies provides coverage for a specified period, usually between 10 and 30 years. If the policyholder were to pass away within the term, the death benefit is paid out to the beneficiaries.
Whole Life Insurance
Aptly named whole life insurance because this type of policy is a permanent insurance that provides coverage for the entire lifetime of the policyholder.
Steps to Calculate the Life Insurance Coverage You Need
Assessing Your Financial Obligations and Goals
When calculating the life insurance coverage that best suits your needs, begin by doing a compressive evaluation of your financial responsibilities.
Current Debts and Liabilities
Start by evaluating your current debts. Things like your mortgage, car loans, credit card debts, and any other loans should be considered. You’ll need enough life insurance to cover all of these debts so as not to leave them to your dependents.
Think about any future expenses your loved ones will have. Your children’s education, weddings, and any other plans you might have for your family’s future.
Daily Living Expenses and Dependents
An approximate estimate of the cost of daily living expenses for your dependents. Consider how many years they would need support, and multiply the yearly expenses by the number of years.
Consider any funeral expenses and additional end-of-life costs, so your family is not burdened with these expenses during a difficult time.
Existing Savings and Investments
Be sure to deduct your existing savings and investments from the total sum of all the above expenses. This amount will act as additional financial support your family would need.
Finally, it’s essential to factor in inflation, as the cost of living is likely to increase over the years.
You never know what’s going to happen in life. That’s why today is always a great time to think about your loved ones and where they’d be without you. Take a step toward ensuring their financial security by speaking with Farm Bureau of Arkansas about our life insurance policies.
Our agents are trained life insurance experts who can perform a life insurance review with you to assess your insurance needs, start a new policy, or make any needed changes to your existing policy. To get started, find a local Farm Bureau Insurance agent near you by using our Agent Finder.