How to Determine the Adequate Life Insurance Coverage for Your Needs
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Contents
- 1 Introduction
- 2 Determine Your Desired Income Replacement
- 3 Determine Your Debt Obligations
- 4 Analyze Your Cash Flow
- 5 Calculate the Value of Your Assets
- 6 Discuss with a Professional Insurance Broker or Agent
- 7 A professional insurance broker can help determine the adequate life insurance coverage for your needs.
- 8 Conclusion
Introduction
Life insurance is one of the most important products you can buy, but too many people buy too little. If you have dependents or a family to provide for, you really need to be sure that you have enough coverage. This guide will help walk you through the process of determining how much life insurance coverage is right for your needs and then finding a policy that meets those needs at an affordable price.
Determine Your Desired Income Replacement
Now that you have an idea of how much life insurance you need, it’s time to figure out how much income replacement is right for you. The first step in this process is determining how much income replacement is appropriate for your situation.
The following questions will help guide this thought process:
- How much income do I need?
- How much income do I want?
- Can I afford my desired levels of coverage?
Determine Your Debt Obligations
This includes mortgages, car loans and student loans. You should also include any other monthly payments you have like rent or alimony payments.
Calculate the monthly payment for each debt obligation by dividing the total amount owed by 12 (the number of months in a year). Add up all these figures together to get an annual figure for all your monthly payments combined. Divide it by 12 again to determine how much money needs to be coming in each month just for those expenses alone!
Analyze Your Cash Flow
Your cash flow is the amount of money that comes in and goes out of your business. It’s a good indicator of how well your business is doing, and can help you make better financial decisions.
If you’re not sure what to look for when analyzing your cash flow, here are some examples:
- Are there any gaps between when bills are due and when they get paid?
- Are there any large expenses coming up (e.g., advertising campaigns or upgrades) that might affect your ability to pay off debts on time?
- Are there any unexpected drops in income from one month to another?
Calculate the Value of Your Assets
This includes any life insurance you already have, as well as your home, car and other personal property. If you own a business or are planning on starting one in the near future, consider the value that would be lost if something happened to you. You might also want to include any retirement accounts that are important for your family’s financial security.
Discuss with a Professional Insurance Broker or Agent
A professional insurance broker or agent can help you determine the adequate life insurance coverage for your needs. A good place to start your search is NAPBIZ, which offers a list of qualified professionals in your area. If you’re looking for someone local and are unsure where to go, ask friends or family members who have recently purchased life insurance how they found their broker or agent and what qualities were important in their decision making process.
Ask questions about the professional’s credentials; most states require that those selling insurance products have an active license issued by that state’s department of insurance (DOI). You should also verify that any licenses held by your prospective broker are valid and up-to-date with no disciplinary actions against them within the last five years–this information will be available online through each state DOI website or by calling its toll free number listed below:
- California Department Of Insurance – 1-800-927-HELP (4357)
- Indiana Department Of Insurance – 1-800-456-6909
A professional insurance broker can help determine the adequate life insurance coverage for your needs.
A professional insurance agent can also be helpful in this regard, as well as a professional company that specializes in risk management services. The following are some examples of questions you might ask your broker or agent:
- What is the ideal amount of life insurance coverage for me?
- Is there any way to reduce my premiums by increasing the amount of coverage I carry?
Conclusion
A professional insurance broker can help determine the adequate life insurance coverage for your needs.
