Deciding how much whole life insurance you need to buy is the first step to providing adequate protection for your family. If you have children you will need to consider the expenses of providing a college education as well as determining the costs involved to maintain your family’s standard of living.
How to Estimate How Much Life Insurance You Will Need
A “needs analysis” approach is one method experts recommend for determining the amount of whole life insurance needed. This method uses your family’s short-term financial requirements plus long-term needs and subtracts your current resources. Using this method requires updating your needs analysis when there is a change in lifestyle such as a major career change affecting your income, a new baby or a divorce.
Other methods to establish how much Columbia whole life insurance is needed are to multiply your annual income by seven or eight, to estimate how much income you will earn from the present time until the age you retire or to simply purchase enough insurance to pay all current debts.
Using A “Needs Analysis” to Establish How Much Life Insurance is needed
- Total your short-term financial needs of outstanding debt and emergency expenses. Outstanding debts would include credit card balances and any outstanding auto, personal or college loans. Also include final expenses that would be expected such as medical and hospital expenses and funeral costs.
- Total your long-term debts including mortgage and college tuition. If your children are not yet of college age you can use an average cost of higher education and the number of years until your children are of college age.
- Calculate your maintenance expenses due monthly such as utility bills, food and clothing, child care, transportation and entertainment. Add the short-term debt, long-term debt and maintenance costs together.
- List the resources you currently have to meet your income needs. This would include savings accounts, home equity, retirement accounts, stocks and bonds and any other cash value resources. Subtract the total resources from the total funds needed to arrive at the amount of whole life insurance you should purchase.
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