How much life insurance do you need


It is important to remember that the purpose of life insurance is to leave your family provided for should anything happen to you. If the insurance you leave behind is not enough, then the very purpose of getting a policy is defeated. That is why you must spend some time deciding how much life insurance you need.

There is nothing wrong if you err on the side of excess. However, a practical approach would be to take a paper and pencil, sit down and jot down a few essentials. First, group your expenses into three heads: final expenses, debts and income loss.

The final expenses are expenses like funeral, state and federal taxes and property taxes. Think how much of your insurance money will be spent on your funeral. You will have to state that in your will. Also remember that funeral costs, like any other cost, will escalate. So get an idea about how much a funeral is likely to cost and set the figure accordingly.

It is imperative that your family has enough funds to pay your taxes. If a part of your insurance is to go towards paying this expense, then you need to factor this while buying a policy. The usual tax rate for a moderately priced estate is about 10 per cent, for larger properties it is a bit more. Ask an attorney for a correct estimate and add this to your policy.

Now you have an approximate figure for your final expenses. It's time to look at what debts you have. Naturally, you would want your insurance money to cover your debts so that your family is not burdened. Make a note of all your credit card payments, loans and installments. This will give you a fair idea of how much you would need.

After this comes the most important part. You would like your insurance to take care of your family in such a way that your income is not missed. To arrive at this is a tough decision. The best way to do this is to calculate the amount that will be required to run the family in case you died tomorrow. Include everything here -- from recurring household expenses to one-time college fund. Then take into consideration things like inflation and for how long the family would need your support. It could be 10, 20 or 30 years; your insurance money will have to hold out for that long. Now all you need to do is add all the figures you have arrived at. This will give you a fair approximation of the sort of policy cover you need. If possible, go for it.


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