In general, you can target your life insurance amount by calculating your financial responsibilities and subtracting your liquid assets.
For example, determine your annual income and multiply it by the number of years you need to replace that amount. Then, add the costs of education, child care, unplanned expenses such as funerals, or debts, including your mortgage balance. Subtract the amount you get with your current obligations such as college funds, insurance policies, and savings.
Don’t Rely on Outdated Rules
Multiplying your salary ten times does not work anymore. This method is considered obsolete as it does not give a comprehensive view of your financial needs. Using this formula also does not calculate college expenses properly, when the costs of education are among the essential aspects of life insurance. Prices seem to also go up every year, but inflation is not often adjusted for, leaving rules like this a thing of the past.
Use the DIME Method
DIME refers to your debt, income, mortgage, and education. Include these four components when you are computing your needs for the right life insurance.
- Debt – Outside of your mortgage, debt includes any outstanding debts and the costs of future funeral expenses
- Income – Your annual income x the number of years your family need some financial support
- Mortgage – The amount of your mortgage
- Education – The amount you would need until your child graduates from college
Consider Life Insurance an Ongoing Financial Plan
When computing your life insurance needs, think of this purchase as part of your entire plan in terms of financial needs. Do not think of this as just one financial purchase. Take into considerations ongoing or fluctuating expenses, income growth, among others. This additional information will help you determine your coverage needs.
Don’t Skimp to Save Money
When you are purchasing coverage, choose more than you think you need. Over the years, your expenses as well as your salary will increase. There is no way of telling exactly how much of those factors would change. But, it helps to know there is something for your family later in the future.
To find out how much you need to aside for life insurance, an insurance agent can help calculate the appropriate amount. At Roper Insurance Services, we aim to provide comprehensive insurance policies that makes your life easier. You can get more information about our products and services by calling our agency at (828) 697-6709. Get your free quote today by CLICKING HERE.