This week is the third and final week of our series on the basics of life insurance.

Our first week covered why you should look into life insurance sooner rather than later. Last week we looked at the two main types of life insurance to see which best fits your specific needs. This week we’ll discuss how to determine how much life insurance you need and when you need to begin your investment.

When to Begin a Life Insurance Policy

Life Insurance serves a specific purpose. It allows you to provide for your dependents in the event of your loss. Therefore, the need for a life insurance policy begins when you have dependents to provide for. For example, I am a husband and father – therefore I need life insurance that would replace the income they are dependent upon. Dependents are not only children; you must consider your spouse as well! If you have no dependents, then you do not need life insurance! At that point, you begin investing. Seems simple, right?

Dave Ramsey says, “Twenty years from now, with the kids grown and gone, when you are debt-free and you have substantial investments, you have become self-insured. Your need for life insurance has gone away,” (Financial Peace University Workbook, Dave Ramsey).

How Much Coverage Do You Need?

There are several questions to consider in order to determine how much life insurance you need. We’ll give you some basics.

How much do you and your dependents spend? Your policy needs to cover your expenses in addition to replacing your income. This article leans toward the assumption that you are living within your means.

If you are debt-free, then you need a policy about 10x your income, invested at a 10-12% rate of return to ensure security for your loved ones. If you have debt or other long-term financial obligations however, you will need a higher coverage to replace income and pay off debt.

If the only dependents you have are grown children, then your policy only needs to hold enough to cover burial expenses. In which case, a solid savings account could serve the same purpose. However, if you have a spouse dependent upon you, be sure to consider them and their needs as well.

There is a lot to consider here. You may not know the best way to answer some of these questions. If you’d like help fully exploring all of your options for Life Insurance coverage, an agent at Henry Insurance Service would be happy to consult you with information tailored to your needs and resources.

Contact us at 225-927-0451 and we’ll help you protect what matters most.