What Kind Of Life Insurance Do I Need

Let's be real, it's time to start thinking about your life... Thus: Life Insurance

What Kind Of Life Insurance Do I Need

In order to fully know how much or what kind of life insurance you need, make sure you have all your ducks in a row. You need to figure out how much money will cover your day to day expenses. To make your life easier, here is a three step process you will want to follow: 

  • Take a look at your finances and see how much you need to save per month in order to live comfortably. 

  • Combine all your debt, and look at how much you spend monthly, although a scary thought. 

  • Keep track of your investments and savings that way you have an idea as to how much coverage you will need moving forward. 

These steps will allow you to know how much life insurance coverage you need. But do not worry, we will dive into this together. 

So you want to know how much coverage you need? Or how to conceptualize the process? Well, in order to find your answer, you need to ask yourself a few questions. 

Step 1: Take a look at your finances  

Am I renting or is my home mortgaged? How much is my car payment? What is my monthly income?  Once you pinpoint these questions the answers are as follows. You want to make sure your family is taken care of in the event of a traumatic experience. Of course you do not want to think worst case scenario, but it is better to be prepared and aware of your financial background, than not knowing where you stand. 

Let’s say you have kids, and hopefully at least one of them goes to college. You want to make sure they have all the tools they need to be successful right? Well, making sure he or she is set financially is apart of the process.

In order to do so, you will want to make sure you have enough coverage to protect your family, so they feel secure without your income. Thus, you need to compose an average amount of monthly spending in order for this to come to fruition. Come up with a concise amount of money that your family could potentially live off of without your income. You obviously want your family to have more than enough money to live freely, so make your numbers realistic. This step requests you to make sure you look at your finances with a clear mind so you can determine your monthly income. 

Step 2: Look at how money much are you spending monthly 

Having a monthly budget is a great way to stay financially organized. Taking a look at your monthly statements will help you with this process. Knowing how much you are bring in and taking out will relieve some of the weight on your shoulder. When looking thought your statements, find the concise amount so you are able to pinpoint how much you are spending. 

After finding out the amount you are bring in, you will be able to apply the 4% rule. Do not fret if you are unfamiliar with this rule. It is essentially a way for you to invest a portion of your insurance pay-out that way you are able to live restfully on the interest. You simply need to figure out how much to invest so the 4% will equal your monthly budget. 

Trust me, this is the easy part. Simply take your monthly budget and multiply it by 12. This will give you your annual budget. Then, divide you annual budget by 4, and multiply that by 100. Now you have the amount you need to invest. Not too hard right?  

Keep in mind this should not be seen as your guaranteed income, but it should keep you comfortable. 

Once you put these number together, you should be able see how much coverage you need. 

Step 3: Keep track of your investments and savings 

Alas, we are close to the finish line. There is one last step. You need to look at how much money you actually have. We are talking about real money; investments, and savings. Not monopoly money. If your real money is dependable, you already have something to move forward with. Looking at your amount of real money will allow you to figure out how much coverage you will need. If you already have reliable money, you may not need as much coverage as your reliable money will cover your existing funds.

Let’s play with some numbers. Let’s say you have $1,000,000 after reviewing steps one and two. If you have good savings and investments that already equals $90,000 that you can deduct that from your coverage, leaving you with roughly $910,000 of coverage that you need. 

So, let’s recap some key information. You need to know how much money you are bring in and taking out. In order to know how much coverage you need, work out your numbers. Find out what your financial obligations are, and the amount you need to apply the 4% rule. It is not as hard as you think. 

So, how much life insurance do you actually need? This is the official question we are trying to figure out. The long and short version of the answer is, it all dependent on your household. I will assume that is not the answer you were hoping for. But it is the truth. It is hard to think about the worst case scenario when talking about your family members and loved ones, but it is better to be prepared than nothing at all. Knowing your financial obligations and keeping track of your finances will help you out in the long run. 

Looking around for insurance does not have to be a chore. Figuring out how much coverage you need is not a hard task, just stay organized and look at your financial needs for your family. If you need some additional help, get a free consultation with one of our excellent life insurance coaches. 



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