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    How to Determine the Amount of Life Insurance You Need

    Figuring out how much life insurance you need doesn't have to become an extensive mathematical equation that you can't easily solve. As we know, life happens. What does that mean for you? As you reach different milestones in your life, you will need to determine if that requires you to increase your life insurance coverage. Let's say you receive a substantial pay raise, now your family will rely on that extra income to cover a larger portion of expenses. This is a great example of when you would want to reevaluate your life insurance coverage amount. 

    So, what should you take into consideration when determining your life insurance needs? First, figure out how much debt you have, then calculate your monthly spending and monthly savings. Next, look at your long-term savings goals. And of course, don’t forget to estimate your final expenses, aka funeral cost, final medical expense, etc.

    Below are a few items to keep in mind when determining how much life insurance coverage you need.

    Multiply your income by 10.

    When it comes to life insurance, the best rule of thumb is to purchase a policy that covers 10 times your annual salary. While you may think that you do not need this much coverage, it will ensure that your family is in a comfortable financial position should your income no longer be available. And, no matter how much planning you do, there may be other future expenses that you did not anticipate e.g., catastrophic medical bills, major automotive repairs, etc.

    Focus on the future and not just right now. 

    When determining how much life insurance you need, it’s important to think about future goals and circumstances in addition to the needs of your family today. The goal of your policy is to ensure that your loved ones have enough insurance to keep financial obligations from causing a hardship. Items like a mortgage, car payments, car insurance, and medical bills are a given when calculating what needs to be covered, as well as college costs for your children,  but you should consider how much it takes to properly run your household. Don’t leave out everyday expenses like food, clothing, household maintenance, and unexpected emergencies. The cost of these items can quickly become a burden on your family's budget, so it's best to consider everything when acquiring a life insurance policy.

    Determine if you and your family have access to other benefits/funds.

    You should take into consideration what other accounts or benefits you and your loved ones have access to in the case that you are no longer around to help. Ask yourself, do you have any retirement accounts, such as 401(k) plans or IRAs that you are currently contributing to? If so, that is money that can be used after your death. There are also federal benefits that your family will have access to like the Social Security Survivors Benefits which will provide funds from the Social Security taxes that you have paid while working.

    Life insurance provides financial security for you and your family. While having a life insurance policy is important, it is crucial to have the right amount of coverage for your family's specific needs. Debt and bills can add up quickly, and you don’t want that to put a strain on your family’s well-being after you are gone.

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    Joan Cleveland

    Joan Cleveland, CLU, ChFC, REBC leads SWBC Life Insurance Company as President and CEO. With more than 30 years of experience in the life insurance industry. She holds her Agent licenses for Life, Accident, Health Insurance, and has multiple FINRA securities Licenses. Joan is a frequent industry speaker and media spokesperson. She is a member of the Board of Directors of the American Bankers Insurance Association, and co-chair for their Government Relations Committee. In addition she is chair of LIMRA’s Strategic Marketing Issues Committee.

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