GetMoore Media
LIFE INSURANCE: HOW MUCH IS ENOUGH?
Sometimes people buy life insurance before performing a financial needs analysis. they might choose an amount that seems comfortable, without actually taking into account all the potential expenses their families might face in the event of an untimely death. If they did make an objective assessment of the possible economic consequences, they would be doing what is called a financial needs analysis.
In fact, you could analyze your own financial needs by following a few simple steps. First total the value of all the things that you and/or your spouse own. These are your assets. (Enter amounts in one column for yourself and in another column for your spouse.) When totaling your assets, you might typically included what you currently have in savings and retirement funds (such as IRAs, 401(k) plans, TSAs, etc.) as well as real estate and existing life insurance. Next, list and evaluate all expenses that you or your family mya face, in case on spouse dies. These are your potential liabilities.
In order to determine how much cash is needed following the death fo a spouse, take a look at these potential cash needs and assign a dollar amount to each:
1. IMMEDIATE MONEY FUND. This includes the total cost of possible medical and hospital expenses, outstanding bills, burial costs, and attorney/executor fees.
2. DEBT LIQUIDATION. Your debt may be in the form of credit card bills, school and auto loans, unpaid notes, outstanding bills, etc.
3. EMERGENCY FUND. Unexpected bills not readily payable from current income could included major home and car repairs, or even medical emergencies.
4. MORTGAGE/RENT PAYMENT FUND. How much would you need to pay off your mortgage or provide for at least ten years' house or apartment rent should one spouse die?
5. CHILD/HOME CARE FUND. Expenses may be created as a result of the death of a spouse who had been performing child and/or home care duties; be sure to estimate the cost of hired help needed to substitute your spouse's duties.
6. EDUCATION FUND. Be sure to include the cost of funding a four year undergraduate education or comparable vocational training for your children.
The total of all of the above costs minus your liquid assets and life insurance would give you your new cash needs. The numbers will be different for you and for your spouse, because assets and existing life insurance, as well as child/home care amounts, are likely to be different.
The steps noted above are a simple way for a family to figure out how much life insurance is really needed. Circumstances vary from person to person and from family to family. Analyzing your financial needs in detail is an important step toward determining the right coverage for you and your family.
