Life Insurance

If you get life insurance, one of the first things you need to think about just how much you need. This is particularly important, and too little of your family may find themselves in financial difficulty if the worst happens and they have to make a claim. Too insurance means that you pay a higher premium than what you need and that can put a strain on your finances. The key is to determine exactly how much life insurance is enough.

Ask friends and family or reading expert advice, you might get several recommendations. Some say you must multiply your annual income by seven to get an indicator of how much life insurance you need. Others say, you should buy enough to replace the income you expect to earn between now and retirement, or whether it is sufficient to buy as much as bringing the total of your debts today. These calculations are rather simplistic, however, and they will not necessarily give you a precise answer.

According to many experts, the best way to decide how much insurance you need is to conduct a "needs analysis". It's not as complicated as it sounds, and if you need more time than your salary multiplied by seven, but it will give you a much more accurate result.

First step: short-term spending

These fall into three categories of expenses that should be paid if you died (including medical, funeral and legal fees), your outstanding debts, and the cost of emergency (as for emergency medical care or something unexpected car repairs).

Second step: long-term spending

Your long-term expenditures include the balance of your mortgage and tuition colleges for your kids. If your children are not yet old at the university, to estimate their tuition fees by finding out the current annual cost of education. Then add five percent per year for each year until they attend college.

Step Three: Day-to-Day Expenses

These are expenses involved in maintaining family, such as food, utilities, entertainment, travel and clothing. Calculate one year's worth of expenses, and then multiply this figure by the number of years you want your insurance to provide this level of income.

Fourth stage: The financial resources

Next, determine what resources you currently have to meet these expenses. This includes your current salary, savings, investments and insurance existing everything in your possession, as well as Social Security. Do not include the sale of all assets that could change the rhythm of life of your family, if they were sold, like your home.

Fifth step: Add It Up

Add a total of three stages. Then subtract your income calculated in step four of your total spending. The figure you end up with a good estimate of the amount of life insurance you need.

Do not be discouraged if you end up with a much higher figure than what you expect, or can afford. If this happens, start your calculations again and try to find ways to cut expenses. For example, paying debts early you can reduce your expenses in the short term.

Because your insurance needs will change in your lifetime, experts recommend that you review your insurance every three years to make sure you have adequate coverage.

Life Insurance