Determining the correct amount of life insurance can seem overwhelming, but it’s an important aspect of financial planning and serves as a financial safety net for your loved ones in your absence. To help navigate this important decision, this blog discusses the importance of life insurance, factors to consider, and ways to calculate coverage.
Life insurance is important because it protects your loved ones from potential financial losses if something happens to you. It helps pay off any debts, pay for living expenses, as well as money to cover a funeral.
It’s important to understand the current and potential future financial needs of your family. If you are the primary income provider, you will need to calculate how much your family will need to be comfortable in the future. To ensure your loved ones can cover daily expenses, bills, etc., consider your annual income and the number of years your family would need support.
By including debt coverage in your life insurance policy, you ensure that your family won’t be burdened with debts such as mortgages, car loans, credit card balances, etc.
Setting aside funds within your life insurance policy can help secure your family’s future and provide them with opportunities they might otherwise miss. Think about significant future expenses such as education, weddings, and other major life events.
One method to calculate your coverage needs is by using the DIME formula. This method is straightforward. It stands for debt, income, mortgage, and education. Here’s how it works:
By adding these components together, it gives you a rough estimate of the life insurance coverage needed.
Another simple way to determine how much life insurance coverage you require is by using GEA’s life insurance calculator. Simply insert the required numbers, such as years insurance must last, inflation rate, etc., and hit “calculate.” This calculator just gives a rough estimate but can be helpful in determining how much life insurance you’ll need.
Determining how much life insurance you need is a vital part of securing your family’s financial future. By considering all the factors stated above, you’re able to accurately assess your family’s needs. Remember to regularly review and adjust your policy as needed to ensure your family’s needs are met as life changes.
GEA members have access to our term life insurance through eFinancial. Protect your family by eliminating their financial worries. Learn more by visiting our website or contacting us.