Life insurance – is the story of your personal responsibility. It’s about taking responsibility for yourself, your family, and your close ones. Right now we are going to be cynical and pragmatic – we’ll talk about the sum of money you will need to painlessly live through the death of a loved one. Financially painlessly, of course.
I am Dennis Chepurnoy and we will cover how much life insurance you need.
At first sight, this conversation shouldn’t be long. Do you have a mortgage? Car lease and a couple of credit cards? Buy insurance that will let your family pay off all debt. Sounds about right? However, we forget to add these expenses into the equation:
- Funeral costs
- Loss of income
- Providing for your children
- Kid’s college education
- Spouse’s pension
Now imagine that you bought insurance that only covers your debt. Not a cent more. Aside from emotional pain, your family will lose about $8,5 thousand of dollars on funeral expenses and they will lose the main source of income. If you were the only provider – they will lose all source financial stability. Your children will lose the opportunity of attending a good college and your spouse will be left to wonder where to find money.
If you truly care about your family, take on the responsibility to provide for them, in case of your absence. Wouldn’t you sleep better if you had the confidence that your family will be financially taken care of?
I have created three rules to help you better understand how much money you should leave for your family.
Rule Number 1.
Your insurance policy should be 10 times more than your yearly income. This is a time-tested and well-known method to quickly determine your insurance policy coverage. Even though it’s a little outdated, it’s still simple to use and generally fits everyone. If your yearly income is $40k, then your insurance policy should cover $400k yearly. This will allow your family to receive monthly income from dividends and gradually use the money until they get back on their feet.
You should set aside $100k for each of your children for a college education. Leaving kids without good education – is the biggest mistake parents make. In case of an unfortunate event, your children will have a good education, even if they will not be able to afford something else for some time.
$100k is the minimal cost of a college education. Later on, if your kids want, they can get a job and take out a loan to pay for the remainder of college. Adult life means adult problems. But it is your responsibility to set up your children for success. There is no excuse for saying no.
Rule Number 3.
All debt must be covered. The sum of all your debt from credit must be paid off, in case of an unfortunate absence. Your house, car, credit cards, everything must be accounted for.
Mortgage – is your main concern in an insurance policy. If you don’t want your family to end up in the streets, in case you are gone – buy insurance that will cover the entire sum of the mortgage.
These are the three rules in calculating insurance – annual income x10 + kids’ college + all debt.
This way you will be able to provide for everyone you love, even if you are gone. Most importantly, understand that your close ones depend on you. It is for you to take care of them.
Additionally, I want to show you a website where you can easily calculate your life insurance and in just a few seconds know your premium cost.
Let’s say that you are currently working from morning till evening, and your spouse is taking care of your children at home. If something happens to you or your spouse, you will also need a nanny to stay home with the kids. And until your kids are mature enough, you will need that extra help. These are the simple expenses people forget about.
Lastly, I want to say that life insurance is a difficult and uncomfortable topic. Nobody enjoys thinking about your own and your family’s mortality. Especially at a young age, when it seems like your entire life is ahead of you. But remember that life insurance isn’t for you. You won’t gain anything from it. It is for your close ones, for them to avoid living on the streets with no money in their pockets.
Dwell on this. Life insurance is much cheaper than you think. Yet can have a drastic impact on your life.
I hope you will make the right choice.