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How Much Insurance Do You Really Need?

The majority of Americans are under insured, no doubt in part because we tend to guess at the amount of coverage we need rather than calculate it. However it is essential to figure out your true coverage needs in order to ensure loved ones are protected financially for years to come. Take a few minutes to answer some simple questions below and get a better idea of your needs.

Key to figuring out your insurance needs is taking a realistic look at your current and future expenses. In assessing your coverage requirements consider the three items below;

1) Debt Obligations -

How much debt would you need to pay off in order for your family to be able to cope without you? This includes your mortgage, cars, credit card debt, home equity loans, future home repairs, etc.

2) Salary Income -

This is the most important sum of money to replace with an insurance lump sum. Ask yourself how much money you would need to invest in order to earn the same amount in income each year? Base your figures on a modest annual return, and factor in inflation as you project how much income you would need in the future. For example, assuming 3% inflation and 6% earnings, you would need a sum of $694,585 to provide an annual indexed income of $45,000.

Note - One rule of thumb is to purchase a policy that will pay off all your current debt (especially your mortgage, if any) and replace your annual income for at least five years.

3) Other Considerations -

Each of us lead different lives, so consider what your specific needs are. Do you want to ensure that your children will be able to afford college? Will you need to provide greater financial support for a family member with health issues? Would your family want to relocate and need extra money?

As your life changes, so will your insurance needs. Reviewing your coverage now, will be time well spent for your family's future.