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How Much Life Insurance Do I Need?

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Let’s face the facts, no one likes to think about dying, but other than taxes, it’s the only guarantee in life. It’s important to sit down and really think about if you were to pass away, how the people you’re leaving behind would be financially affected.  Depending on your stage of life, your passing can have a very large or very small effect on your loved ones and life insurance can be an amazing tool to provide financial security for you and your family.

How much life insurance you need is a combination of two factors: immediate needs at death and continuing needs of your family. This guide will help you determine how much is appropriate for your specific needs, however, it’s important to ask a licensed professional for help. Let’s break down both of these life insurance needs in detail:

LIFE INSURANCE IMMEDIATE NEEDS:

  • Final expenses: this need affects everyone because unfortunately, funerals cost money. Many people don’t want to burden their loved ones with the cost of these final expenses
  • Mortgage balance/debt cancellation: this doesn’t affect everyone, but for some, it’s important to make sure the house and personal debt is gone if they pass early
  • Education expenses: for people who would like to ensure their children could go to college or university if they pass early
  • Estate taxes: things such as cottages or rental properties can cause a large tax bill at death, many use life insurance to keep these assets in the family
  • Legacies and charity: for those who would like to leave a surplus of money for loved ones or charities

LIFE INSURANCE ONGOING NEEDS:

  • Replacing income: this is meant to provide for your family through the years, and this particular need is determined by the percentage of your income you want to replace, and the number of years you’d like to replace your income. Another method is deciding a flat amount your family would need monthly to be comfortable. For example, a $500,000 policy should provide about $2000 tax-free per month for 20 years if invested properly.

TOTAL LIFE INSURANCE NEEDS EXAMPLE:

TAKE CARE OF IMMEDIATE CHALLENGES
Burial and other final expenses $15,000
Mortgage balance $150,000
Other debt $15,000
Estate taxes $50,000
Education expenses $25,000
Legacies and charities $0
SUBTOTAL $225,000

 

PROVIDE FOR YOUR FAMILY THROUGH THE YEARS
Current annual income (a) $70,000
Percentage of income to replace (b) 50%
Number of years to replace (c) 15
SUBTOTAL (a x b x c) $525,000

 

ROUGH ESTIMATE OF LIFE INSURANCE NEEDS $750,000

 

Where will this money come from? That’s up to you to figure out! With the help of a HERO, you can more precisely calculate your life insurance needs. Let’s develop a life insurance solution to deliver personalized protection that gives you the foundation for the rest of your financial plan. You can call us at 855-777-4376 or request a quote here!

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