There’s no exact science to determining how much life insurance you need to carry. But if you have a family that depends on you, you likely want to have some kind of policy. It’s best to make a sound estimate based on the information you have at hand and what your loved ones will need in the coming years. There are several different options for calculating your needs.
Option 1: Multiply Your Income
One of the easiest options is to simply take your annual income and multiply it by ten. That option, of course, doesn’t take a detailed look at your family’s needs and it doesn’t take your savings account or any other assets into consideration. However, it’s a simple formula that can give you a basic idea of how much life insurance you might want. The idea is that your income would be replaced for a good number of years if you are to multiply it by ten.
Option 2: Multiply And Add
Another option is to multiply your income by ten and then to add $100,000 for each child to help with college expenses. College is a huge expense and it may not be something you can afford on your regular income. By adding to the policy for every child you have, you are able to secure their education in the future.
Option 3: DIME Formula
The DIME formula uses your debt, income, mortgage, and education to calculate what your family needs in the future. You will first add up all of your debts (outside of your mortgage) and estimate your funeral expenses. You can even plan your funeral in advance to get a better idea what those expenses will be. Then, you decide how many years your family would need income support and multiply your own income by that number. Next, calculate how much you need to pay off your mortgage and last, estimate the costs of sending your kids to college. This formula gives you a comprehensive look at your lifestyle and what your family may need in the future. It doesn’t, however, take your savings into account nor does it look at other life insurance coverage you might already have.
Finding Your Best Number
There are no right or wrong answers when you are looking at life insurance policies. However, you want to make sure your family is in good financial standing if anything were to ever happen to you. Instead of looking at life insurance alone, consider it as a part of a financial plan that takes future expenses and rising costs in mind as well. It’s easier to figure out what’s right for you when you look at the big picture.
Contacting Professionals About Life Insurance
Not everyone operates well with numbers and if you need help figuring out what to do, what calculations to put into effect, and what policy is best, contact Nickerson Insurance Services with your questions. It’s a complicated matter, but one you most definitely want to have settled for your family’s future financial security and your own peace of mind.