How Much Insurance Do You Really Need?

I am writing this article to provide better insight for those who want to insure some their most valuable asset(s); business, life, legacy, etc. Unfortunately, most Americans fail to plan in the event of sudden loss of life which will be devastating to their loved ones left behind. Some gurus exclaim that a blanket of 10 times your income is what you should be covered for which is not giving the whole picture. You could very-well end up being under or over protected in the long-run. The ideal solution is scheduling a strategy session with someone who is life insurance licensed in your state and go through a Financial Needs Analysis in order to receive a clear picture of what costs need to be covered so that your loved-ones will not unnecessary expenses and start a GoFundMe page (no shade, just facts).

Simply put, before buying insurance try to figure out how much you need. How much insurance you need depends on a variety of factors, including the type of insurance you’re looking at getting, the laws, and your family financial situation. In general, the idea behind insurance is to avoid added financial stress when a difficult situation occurs, not shower someone in riches.

By Law

Each state has various requirements on auto insurance, so you need to ensure that whatever insurance you get for your automobile covers what is required by law. Most states have quite low requirements so you may want to also decide to get a little extra based on your needs and your own level of risk aversion.

Income Needs

If your family needs income after your death, you may want to consider various types of insurance that can offer an income to your beneficiaries. Your insurance agent can help you determine what type of insurance is best for your needs, but the first thing you should do is make a list of your assets, debts, and how much income your family will need if you’re not there. Age plays a big factor here, too. If your spouse is closer to the age they can collect social security, the income you need to provide them after your death will be substantially lower.

How Much Debt You Have?

Some debt will disappear with your death automatically. Other debt, such as joint debt, medical bills or your house payment will NOT go away. When you factor in that, and the loss of your income, plus paying off the debt that you’ve accumulated, you’ll have a much better idea of how much life insurance you need. The same thing can be done for other types of insurance, such as homeowner's or renter’s insurance. It’s based on how much you need to pay off or replace.

Your Level of Risk Aversion

Some people have a higher tolerance for risk than others. If you have a large cash savings account, it’s important to consider how much of that you want to risk, compared to the cost of buying enough insurance to pay down debt, pay final expenses, or pay to fix your car in an accident. With auto insurance, the higher your deductible the lower your monthly premium payment, so if you have good cash reserves you might be willing to risk some of your savings to pay less each month.

How Much Pension You Have?

If you have a pension account, consider that in your insurance needs because it’s money that your family may have available in addition to your savings and insurance. Generally, the more cash your family will have at your death, the less insurance you need to purchase. However, what if you were incapacitated instead of dead? Do you have insurance to cover that contingency?

Your Legacy

While insurance should not be something you buy to create wealth in your family due to the expensive nature of insurance as you age, sometimes you just want to provide a legacy to someone such as a charity or a grandchild. You can get a special policy that goes directly to them after your death just to pass on something from you, even if you have nothing in the way of personal assets now.

Deciding how much insurance you really need depends on the type of insurance you’re getting, your current cash savings amount, and how close you are to retirement. In addition, consider your risk tolerance level, and the needs of the people you love and care about. Setting up a time to speak with someone like myself will provide clarity and peace of mind for you and your loved ones.