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How Much Life Insurance Do You Need?
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How Much Life Insurance Do You Need?
Figuring out how much life insurance you need to carry can be confusing. It really depends on a few factors, and there are a few simple methods you can use to determine how much you should carry. At the most basic, there is a minimum amount of life insurance you should carry if you want those left behind to avoid a struggle. Beyond that, you really can't have too much insurance, so add more as you can afford it. But remember, the younger you are when you take out your policy, the more affordable it will be.
Who Will Be Left Behind?
Who will be left behind when you pass away is one of the biggest considerations as to how much life insurance you need. If you are married but have no children, and your spouse has a good source of income, you might not need as much insurance as someone who is the main breadwinner. Each child you add to the mix means more insurance you will need to ensure they are cared for if you are gone. You also need to consider whether you want to provide for college educations for your children or if you are simply aiming to meet their basic needs.
Your Annual Income
How much you make every year is a good starting point to determine how much your family will actually need to survive without you. If you are the sold earner in the family, then you know that your income is enough to keep the family at the current lifestyle they are used to. Many agents recommend that you provide at least 5 times your annual income in life insurance, which provides your family with approximately 5 years of income to recover and find a new source of funds.
Mortgage Protection Coverage
Will your family be able to pay the mortgage on your home after you are gone? If you don't want them to lose their home, providing enough life insurance to pay off the mortgage is a good idea. This is often recommended on top of the annual income you will provide to your family.
Life Insurance Calculators
There are a number of excellent life insurance calculators available online, and your insurance agent can also provide this service. With a small amount of information regarding your finances and income, these calculators make it easy to determine just how much insurance you should take out. Remember that while life insurance may seem like an unnecessary expense, your family's future may depend on it. Make sure you have enough so that you will be prepared for an unexpected tragedy.
How Much Your Policy Really Cost?
The cost of a health insurance policy goes beyond simply the monthly premiums. Deductibles, co-pays, and co-insurance amounts should all be included in the calculations when determining what you should actually expect to pay each year on top of the premium amount. When comparing health insurance quotes, be sure to factor these other costs of health care in so you are certain you've chosen the best option.
How Often Do You See The Doctor?
Most insurance plans require that you pay a set amount, known as a co-pay, each time you see the doctor. If you have a lot of regular doctor visits, such as when you are pregnant or in treatment for a particular condition, your co-pays can add up quickly. When comparing health insurance policies, determine the co-pay amount and estimate how many times you think you will see a doctor in the coming year. You can then calculate your co-pays for the year.
What Is The Policy Deductible?
Many policies carry a deductible, which is the amount you will be expected to pay out of pocket before the full terms of the policy kick in. A larger deductible can mean a lower monthly premium and vice versa. You will need to decide whether you would rather pay the extra amount on a monthly basis, or pay the deductible bills as they come, which could be in one large chunk in the case of a hospitalization. You should also bear in mind that each person on the policy will likely have to meet their own deductible amount.
Is There a Co-insurance Amount?
In order to bring premiums down, some plans use a co-insurance option, which is usually calculated as a percentage of the medical bills that you will be expected to pay out of pocket. For example, if you have an 80/20 co-insurance plan, your insurance company will pay 80% of the bill, and you will pay 20%. Again, try to estimate how much medical care you think you will need to get an idea of how much you might pay out of pocket.
The Out Of Pocket Limit
Just as it sounds, the out of pocket limit is the maximum amount you will be required to pay out of pocket for the year. If you have added up all of the co-pays, deductibles, and co-insurance amounts for the year, and it comes out above this amount, then you have a pretty concrete idea of what you will pay for health care that year-the premiums, plus the out of pocket limit amount.
For those who see the doctor rarely and are in good health, it is often a good financial choice to take a policy with a high deductible, large co-insurance percentage, and larger co-pay amounts. If you anticipate more health care needs, you might be better off with a higher monthly premium and lower out of pocket limit.
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