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How Much Life Insurance to Purchase
If you have made up your mind to buy Life Insurance, the most important question to answer is how much insurance to purchase. The answer to this question depends on a number of factors, including your state of health and age, your marital status, your family's financial circumstances and the needs of people depending on you and your income.
A reasonable and quite feasible approach to the problem is to thoroughly analyze the various needs of your family in the event of a family member's death. The amount of Life Insurance you need to purchase depends on the money the family will need right away, i.e. the anticipated burial expenses and the immediate financial needs of the family after the insured's death - living expenses, medical bills, debts, loans, etc. Other financial considerations to take into account include your current annual salary, mortgage payments and estate taxes, provision of an income that will help the family to readjust to a new situation as well as a regular monthly income, tuition for children and funds for retirement. Being a practical person you will certainly think about your family's future financial needs. You should try to foresee additional expenses your dearest and nearest may incur, such as, for example, paying for education to get promotion and be able to provide for the family or changing the place of living under the circumstances.
In this context comes another guiding principle for you to follow when you determine how much Life Insurance to purchase. According to it, the fewer dependants you have the lower amount of insurance you need. Therefore, it is important to determine the people who depend on you financially. These may be not only your spouse and your children, but your parents or grandparents, your brothers or sisters, nieces or nephews.
The next step to take is to determine the monetary value that you bring to your family and compare it with your dependants' potential financial needs. The estimate will be rough, of course, but it will give you an idea of the gap you need to cover. The naturally expected outcome goes like this: your Life Insurance should be enough to preserve the quality of life for your family, if combined with other sources of income, as well as to offset extra costs they will incur to replace the services you currently provide for them.
In general, if you are wealthy enough and can afford purchasing a Permanent Life Insurance policy with a large package of services without getting financially straitened, you can be sure that it alone will be a substantial backup for your family. It will certainly spare your family the hardships conditioned by the fact that you did not have enough Life Insurance. Thus, if you tend to maximize your profit, if you are ready and solvent to make a major investment in your life, Permanent Life Insurance with a large package of services is definitely for you.
Having several financial goals when deciding how much Life Insurance to purchase is quite a natural thing, but you often have to bear in mind the financial constraints. If your income is modest, the emphasis shifts toward your capacity to pay the premiums for the chosen coverage. The required premiums for your insurance coverage can vary. The important factors determining the premium usually include your age and state of health, your gender (life span for males and females is different), smoking, your lifestyle and even the place you live in. A representative of the insurance company will examine you professionally and make a conclusion about your specific premium considering all the aspects mentioned.
Although the best way to determine the ultimate coverage level for you is a careful scrutiny and evaluation of personal financial information, there is a rough rule of thumb which suggests an amount equal to 6 to 8 times (in some sources 5 to 10 times) your current annual income. Experts often say that once you have this arrived at the amount of Life Insurance that seems appropriate for your particular situation, it is better to add 20% more, just to be on the safe side. This, however, often remains a virtual rather than practical consideration because the amount you find appropriate exceeds the allowable income bracket for you and you may simply fail to pay the premiums. As it often is, a virtually reliable and valid estimate does not prove applicable to an individual situation. Remember, these are very general and approximate numbers and they should be taken as they are.
Another popular approach to determining how much Life Insurance to purchase is known as the "the multiple salary". According to it, it is recommended to buy Term Life or Whole Life Insurance equal to 20 times your salary before taxes. If you have a 5% interest rate with your insurance policy, this investment would produce an amount equal to your salary at death. It must be noted that the major drawback of this estimate is that does not take into account inflation and other sources of income you might have.
Once you have calculated how much money you want to leave for your family, consider how much you have at the present moment in terms of your income, Life Insurance and other assets including savings accounts and your pension plans and then subtract that amount to know how much Life Insurance you currently need. Remember that your circumstances change and so do offerings from different insurance companies. Correspondingly, there are options allowing you to adjust your Life Insurance policy in accordance with the current circumstances. It is a common practice for young adults to purchase the minimum of Life Insurance and keep their monthly premiums to a bare minimum. With time if their life circumstances change favorably, they can afford more and they often increase the coverage making it a profitable investment.
The question of the appropriate amount of Life Insurance is very complicated. You should know that different insurance companies offer various rules about the lowest amount of Life Insurance that you may purchase. The amount you choose can range from a few thousand dollars to hundreds of thousands and to million dollars. Moreover, Life Insurance policies contain innumerable provisions stipulating options and conditions that predetermine the type and scope of the coverage. It is therefore probably better to seek a qualified advice of an insurance agent who will navigate various policies for you when you feel ready to review Life Insurance options and quotes with the purpose of purchasing a suitable Life Insurance policy.
You can also find assistance online if you address online Life Insurance calculators that will help you assess your needs taking into account all the deciding factors, and come up with the amount of insurance coverage that is appropriate for you. Do not be afraid to ask for qualified help. Your common guideline should be the following: the better you are informed, the wiser investment you make.