When someone has dependents to protect after death, he or she usually needs Kankakee life insurance. While some people do have enough savings to see their dependents through, the vast majority will need some type of coverage. Figuring out whether or not to obtain insurance isn't the hard part. It's deciding how much insurance to buy that often proves difficult.
Which Type of Life Insurance
The first step in determining how much life insurance a person needs is evaluating which type of insurance will benefit his dependents the most. Individuals who have the dismantling of a business to consider might choose whole or universal life insurance. The same applies for individuals who want to provide their loved ones with protection against estate taxes. For those without such concerns, who primarily want to protect their families against loss of income, term insurance may prove a better fit.
When using online life insurance calculators, many people come across formulas that simply take their salaries and multiply them by 10, 15, or 20 years to determine how much life insurance they need. This, however, is a flawed approach, as the amount needed will usually depend on the dependents' (spouse and/or minor children) monthly expenses and years until retirement. Formulas that produce the same numbers for individuals with adult children, those with small children, and people with only a dependent spouse may cause insurance buyers to underestimate or overestimate their insurance needs.
A Better Formula
To more accurately estimate life insurance requirements, it helps to consider the following:
- Income and Living Expenses: A good rule of thumb is to consider how much income an individual's dependents will need to live on in the event of her death. Let's say they need $50,000 a year. In such a case, the individual may benefit from a policy that will yield that $50,000 in annual replacement income if the insurance monies earn 5 percent annually. She can calculate the amount of insurance she will need in such a case by dividing $50,000 by 5 percent. The result, in this example, is $1 million of life insurance to cover lost income.
- Debts: Coverage needs also depend on the total debt the insured party will leave behind. Typical debts include student, car, and personal loans; mortgages; and credit card accounts.
- Funeral Expenses: Funerals and other after-death expenses often cost up to $20,000. If an individual's dependents will pay these costs from insurance proceeds, this amount should be considered in determining how much coverage to buy.
- College Costs: An insurance buyer should consider how much, if anything, he wants to contribute to his dependent children's college expenses. This amount, plus a factor for rising costs, should be incorporated into insurance need calculations.
Since evaluating life insurance needs can prove so complex, it helps to seek the guidance of an insurance professional. Give HomeStar Insurance Services a call at 815-468-8763 for a free life insurance quote.