Buying life insurance is a very important financial decision and can be one of the most confusing. How you choose which policy, how much should you buy, how you understand the more complex forms of insurance are all questions that need answers. Comparison shopping between all the different types of insurance seems impossible.
Most people start with the basic question: How much? The simple answer is “as much as you need to cover your family’s needs if you are no longer around to provide your standard of income.”
A quick rule of thumb: buy coverage that equals six to ten times your annual income.
That calculation isn’t nearly as precise as estimating all your future spending needs and investment income, but it can help you get started. Keep in mind two people earning the same income may have very different needs. If you’re supporting a big family and an expensive mortgage, then you should lean toward a higher figure. If you have a working spouse and less expensive house, then you may be safe with the lower end of the range. But it never hurts to round up if you can afford it.
We will spend the next several articles examining some basic issues surrounding life insurance, such as:
- When Should You Buy?
If no one depends on your income for support, you probably don’t need life insurance at all.
- How Much Do You Need?
The answer is based on a formula that considers immediate and future needs and how much income your dependents will have when you’re gone.
- What Kind Should You Buy?
For most people, term insurance makes the most sense. If you’re looking for a savings component, get ready for some real confusion.
How Do You Get the Best Policy at the Best Price?
Here’s our guide to getting the most bang for your coverage buck. We’ve also included a key to insurance ratings.