The realization of mortality affects people in different ways. Life events such as marriage, having children, and taking on large debts have a big impact on how people feel about what they are leaving behind. Many people have some level of concern about how they will be remembered. Will you leave behind burdens, debts, inheritance, or memories?
Regardless of what you intend to leave behind or who you intend to impact, the decision of how much life insurance to purchase is a personal one. The impact you want to create will be influenced largely by the means you have to put the plan in place. Different kinds of life insurance can make purchasing a higher death benefit more plausible. For the purpose of this article, we will strictly be talking about how to decide on an amount. The type of life insurance used to achieve the goal is another matter.
There are many ways to think about the amount of money you want to have left behind. It is best to plan for income replacement rather than think about one lump sum payment. Aside from the pain of losing an important family member, the family will struggle based on the fact that the household income will be lowered.
Two Paths to Replacing Your Income
All of your income will not need to be replaced. What you need to have replaced can change significantly depending on how many surviving dependents you have in the household. If you have children that are older in age, you can plan to have your income replaced for a short time until they are out of the house. If this is the case, decide on a number and multiply that by the amount of years income will be required. Simple.
The second strategy is for when you are planning to provide income for a longer period of time. With this mindset, you should be thinking about what kind of money you need to put into a vehicle that will provide a reliable yield. For example, if you would like to provide an ongoing income of $30,000, you can plan to have $500,000 in your death benefit earmarked to go towards a financial vehicle providing a reliable six percent yield annually.
It’s Not That Simple
Income replacement will account for a large portion of what you plan to leave behind. Still, you also need to take final expenses, remaining debts, and education funding into account to get your final number. The most important part of the process is having an open and honest conversation with your significant others. You are preparing to leave something for them, so they deserve to have some say in what they need and don’t need. This is not an easy process. There will likely be some desires left unaccounted for. The important part is taking care of the vital matters and ensuring you have a plan in place.
No matter how you determine the amount of life insurance that is right for you, a connection should be made with a reliable planner to guide survivors through the process. Implementation can be complex and your beneficiaries might not be interested in dealing with it. This is understandable at an emotional time for them. With guidance from a seasoned professional that understands your intentions, you can ensure that the people you care about are taken care of.