Buying life insurance is a chore that many people put off because it just seems too complicated; however, one of the biggest gifts you can give to your family is the peace of mind of not having to worry about financial troubles if you should pass away. So, how do you know how much you need? Consider these things:
What expenses will your family face? Life insurance can be used for just about anything. Your family will likely need to pay immediate expenses like funeral costs, final medical bills, and the costs of settling your estate. They may also need to cover long-term living expenses, payments to creditors, children’s college expenses, and other needs. Tally up all of the expenses your survivors are likely to face, both short term and long term.
Who relies on your income? If you’re single with no dependents, your life insurance needs will be minimal – you may only want a small policy to cover your funeral expenses. On the other hand, if you’re married with several small children, you’ll need to plan carefully to help your family cover expenses immediately following your death and to help them maintain their standard of living long-term.
What resources will your survivors have, besides your income? This includes your savings and investments, other life insurance policies you may already have in place, and their individual earnings.
Once you’ve taken all of these factors into account, you’ll want to subtract the financial resources your survivors will have from their total expenses. The difference is the amount of life insurance you’ll need to purchase.
Of course, this is just a general guide. Each family’s expenses will differ and will be highly personal. A professional can help you analyze your financial situation and advise you as to exactly what your life insurance needs are.
Paul A. Kraft, Estate Planning Attorney
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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