Determining How Much Life Insurance You Need

J.P. Gonzalez-Sirgo
Founder of J.P. Gonzalez-Sirgo, P.A.

If you are in the market for a new life insurance policy, the amount of coverage you need should be as important a consideration as the type of life insurance product you will buy.  If you purchase too much life insurance, you will end up paying a high premium that you might not otherwise need to pay.  If you purchase too little life insurance, your beneficiary or beneficiaries might not experience the comfort and security that a life insurance policy is designed to provide.

One of the most common reasons individuals purchase life insurance is to replace that person’s lost income if he or she passes away prematurely.  As individuals age, they typically require less and less in life insurance as their accumulated savings typically grows over time so as to provide more adequate financial means to surviving family members.  Conversely, young individuals who ought to have many working years ahead of them typically require a larger policy since their savings is typically lower, so dealing with an unexpected death and loss of income could prove especially disastrous to the family.

Step One: Consider Your Family’s Income

An insured should begin by considering how much income he or she is presently bringing into the family and any other sources of income that exist for the family.  A breadwinner’s contribution to the household’s income should be considered first. Policyholders can review their most recent paystub or tax documents to determine the income actually brought home (not necessarily the same as your rate of pay).  Policyholders should consider any other sources of income for your household. Does your partner work? If so, how much income does he or she bring home? Does your family receive income from investments or royalties?  If so, how much money do these provide?

When considering other sources of income, consider whether that particular source of income would continue after your death as this may affect calculations regarding your family’s needs.

Step Two: Consider Your Family’s Expenses

You should go through your family’s budget next to determine how much money your family needs to live on in any given month.  Because this amount is prone to fluctuations, you may wish to take several months of your family’s expenses and arrive at an average figure. With your family’s income and expenses calculated, you should have a good idea of what amount of income your family needs in any given month to maintain the standard of living your family is accustomed to enjoying.

Step Three: Calculate the Initial Death Benefit Amount

A rule of thumb proposed by some is that the average insured will need $1 million in death benefit for every $50,000 that is needed yearly to meet his or her family’s expenses. For example, if an insured individual determines his or her family needs $75,000 in yearly income to meet expenses and maintain a comfortable standard of living, then the insured should seek out a policy with a death benefit of at least $1.5 million.

Step Four: Add in Any Additional Expenses

If you have young children and want to provide for their college education or a son or daughter’s wedding, add this amount to the initial death benefit amount. The final product should be a good approximation of the size of the policy you will need.

Of course, purchasing the policy is one matter; obtaining payment on a claim for life insurance benefits is another. Our Miami life insurance law firm assists clients who are forced to battle their loved one’s life insurance carrier for payment following their loved one’s death. We help Florida residents obtain payment on their insurance claims. The Law Firm J.P. Gonzalez-Sirgo, P.A. offers free consultations and case evaluations. No Recovery, No Lawyer Fees. Call 305-461-1095 or Toll Free 1-866-71-CLAIM.

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