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How Much Term Life Insurance is Enough?

You have made up your mind about buying a term life insurance but the question stands, how much do you really need? $100,000 seems like a big amount but you need a way of knowing if it will be enough. There are multiple details to factor in when you are trying to determine the term life insurance amount. This post is to inform readers about the term life insurance selection process and a formula for estimating the amount they will need.

The Basic Formula
There is no standard way to calculate the term life insurance coverage that will be enough. Some financiers recommend getting enough insurance to cover five to seven of your annual salaries. However, if you have young children or are in a lot of debt the estimate will change to 10 years of salaries. Based on the given formula if you are earning $50,000 annually then you should purchase a term life insurance worth $250,000 to $500,000.
Most people delay buying life insurance because they think they cannot afford to buy the plan they need. For those people, term life insurance is the better alternative as it is more affordable and can give you the exact amount of coverage you require. There are however some things that need deliberation before you choose a term life insurance plan. It is important to remember that this insurance will be paid to your dependents in case you die so it should be enough to let them maintain their standard of living.

The Determinants
The insurance amount should be enough to allow your spouse to arrange a proper funeral and burial, pay off outstanding debts, and raise your child with integrity. You should also take into account any other assets that you have which will generate a steady income for your family. Because term life insurance is to help manage expenses for a specific period of time such as 10, 20 or 30 years you should make sure the amount is large enough to cover all the years. The period of time can be determined by calculating how many years it will take for your child to graduate from college and support themselves and their parents.

Also, factor in all outstanding debts such as mortgages, credit card bills, car loans and other loans taken from the bank. You can subtract current savings, pension plans if any, investments, and any other life insurance plan you already have.
Estimating a term life insurance plan is easy if you are well aware of all the future expenses which will be incurred, all debt payments and any savings or income-generating assets. There are several insurance calculators online which can help you in determining the right plan. You could even hire an insurance agent who can conduct a detailed analysis of your needs using the details you provide and all supporting documents. The insurance agent will know to ask the right questions and make sure no aspect is left out of the calculation.

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