Most of us like to believe that life is priceless—but in some cases, it’s essential to figure out how much your life is worth. Why would you do such a thing? Because calculating your worth will help you determine how much life insurance you need.
Everyone’s a millionaire.
Believe it or not, most people earn more than $1 million throughout their lifetime. Think of it this way: If you earn $50,000 a year, you’ll make $1 million within the next 20 years. Of course, most of this money goes toward supporting your family and paying day-to-day expenses like groceries, the mortgage, and utility bills.
If something were to happen to you, your income stream would halt. What would your family do without the money to pay the bills and buy necessities? This is why it’s crucial to purchase life insurance and ensure you have enough insurance to cover your family’s needs.
How much do you need?
One way to determine how much you’re worth to your family is to consider how much income you bring home each month. Then, you can buy a life insurance policy that will pay your family a monthly payment comparable to what you currently earn.
For example, if you buy a $500,000 life insurance policy and the death benefit proceeds earned 4% annually, your family would receive a monthly payment of about $5,137 for the next ten years. If you want your family to receive more monthly money or fees for longer, you’ll need to buy more life insurance.
Unfortunately, figuring out how much life insurance you need isn’t as simple as calculating your monthly income. In addition to replacing your payment, you’ll need to consider other expenses your family may face if you die. For example, they may have to pay medical bills, hospital expenses, and attorney fees and make funeral arrangements. They will also have to pay off any outstanding debts you may have as well as taxes.
On top of that, you should consider your family’s long-term expenses. Not only will your family be left to pay the mortgage and the bills, but how will your family afford your children’s college tuition or wedding costs? Be sure to factor in any other sources of income your family earns—your spouse’s salary, Social Security survivor’s benefits, and investments—and the cost of inflation. Things become more expensive every year. You want to get an accurate picture of how much money your family will need in the coming years to determine how much life insurance to buy accurately.
A unique number
Each family’s life insurance needs will vary significantly. It all comes down to your income, your expenses, and your goals for your family. Finding the “magic number” is challenging because it’s somewhat of a balancing act. You want to own enough life insurance to protect your family if something happens to you adequately, but you don’t want to buy so much insurance that there’s no money left to enjoy your present life.
The goal is to have enough life insurance to safeguard your family without breaking your budget. Brian Gruss can help determine how much you need to buy and what you can realistically afford in your budget.