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Top 10 Questions To Ask To Determine How Much Life Insurance You Need

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Life insurance is designed to replace your income and help your family to keep living their lives without financial ruin in the event that something happens to you. Read on to find out the top 10 questions you need to ask to determine how much life insurance to buy.

  1. How many dependents do I have now? Dependents are those people depending on your income. For most people, dependents are their children and perhaps their spouse. However, for others, they may have additional dependents. For example, if you have aging parents that are depending on your income, then you may need to be able to provide money for them to live on. Generally, anyone who would face financially difficulty if you were no longer contributing money to them is a dependent.
  2. How many dependents am I likely to have in the future? Buying life insurance when you are young is a great way to lock in a policy with a lower premium cost. However, you may not yet be married or have children when you do so. Think ahead to your plans for the future and about how many kids and dependents you are likely to have before the term of your policy runs out. Then, buy enough insurance to make sure they are all taken care of.
  3. How much do I make? Life insurance is not really designed to make your family wealthy- it is designed to replace the income they will no longer have coming in if you pass away and are unable to work. Thus, your salary is directly relevant to how much life insurance you buy. If you make $100,000 per year, your family likely has higher expenses and a higher cost of living that they are dependent on your salary for, than if you make $30,000 per year. The general rule of thumb is you need 10 times your income in life insurance- so if you make $30,000, a $300,000 policy should be OK but if you make $100,000, then a million dollar policy may be more appropriate.
  4. How many years do I have left to work before retirement? If you have a long time before your retirement, then that is a longer period of time in which your family would not have your income should something happen to you. However, if you are very close to retirement, presumably your family will not be dependent on your income for very much longer anyway and buying a large life insurance policy may not be necessary.
  5. How many years are left on my mortgage. Many people want to buy a life insurance policy that will pay off their mortgage should something happen to them. This would allow their spouse and children to continue living in the family home in the event of an untimely death.
  6. Do I have children that will be going to college? Likewise, you may want to add the cost of college tuition to the policy you buy. That way, your family will be able to have the replacement value of your income as well as the cost of college tuition. This will allow them to maintain their standard of living and be able to go to school without student loans.
  7. Do your dependents have another source of income? If your dependent's are not really dependent on your salary, then they may not need as large of a death benefit to maintain financial security.
  8. What will my burial costs be? At a minimum, you will want to make sure you have life insurance to pay for your burial costs. Otherwise, these expenses will fall to your family
  9. What other costs may be incurred? If you anticipate other large expenses occurring, you may need to buy more life insurance coverage.
  10. How much does my family need to be financially secure? The most important reason for buying life insurance is to make sure that your family does not face financial disaster upon your death. Only you and your family know how much money would make them feel financially secure if you were to die an untimely death.

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