How much does life insurance cost?
The cost of life insurance depends on the type of coverage you choose, and some other factors including:
- Your age,
- If you smoke,
- Your gender,
- Your occupation, and
- Your personal and family medical history
Most insurance companies weigh these factors differently, so the only way to know how much life insurance is going to cost is to speak with an advisor about your particular situation, preferences, and circumstances.
How much life Insurance coverage should I have?
It’s difficult to know the exact coverage you need by coming down to the precise dollar. But we can estimate the right amount by assessing your current financial condition and imagining what your family will need in the coming years.
Generally speaking, you should figure out your life insurance requirement by estimating your long-term financial obligations and deducting the assets you already have. Your life insurance coverage should fill up the gap in between.
Three rules of thumb when estimating the amount of life insurance coverage you may need
Rule #1: Multiply your current income by 10
This rule does not take into consideration your family’s needs. It also does not consider your savings or existing life insurance policy. Also, this rule is not valid for stay-at-home individuals who should also have a life insurance plan without any income. Evaluate your yearly income and multiply by 10. That is roughly going to be the life insurance coverage you need for the next 10 years at least.
FYI: This rule has seemingly gone outdated based on our current economy today, housing boom, and rate of interest. So, unless you are in a hurry to get yourself a plan and are on a very tight budget.
Rule #2: Purchase 10 times that of your income with an additional $100,000 for every child (college expenses)
If you have kids or plan to have kids soon, education expenses must be an important component of your life insurance plan.
This rule adds an additional $100,000/child to the previous 10-times rule. But it still does not delve deep into your family’s needs and goals. It also does not consider any life insurance coverage you might already have (like your group life insurance from work – if any).
Rule #3: The DIME rule
This one takes a more detailed look at your finances in comparison to the previous two. DIME is the acronym for Debt, Income, Mortgage, Education. These are the 4 most important areas you should consider when deciding on your life insurance coverage.
- Debt: Consider your debts – add them up (do not consider mortgage in this section). Also, make an estimate of your funeral expenses.
- Income: Make an estimation of the number of years your family would need support. Then multiply your annual income by that number.
- Mortgage: How much amount do you need to pay off your mortgage? Consider it here.
- Education: Make an estimation of the amount of money you need to send your kids to school and college.
By adding all the above obligations together, we will get a much better view of your life insurance needs. However, this formula still does not include the coverage and savings you already have.
Finally, if you want a quote for any other kind of life insurance, I can assist you in making a determination of whether this would be beneficial to you.
However, when it comes down to it, only you can decide what’s best to protect you and your loved ones, and which type of insurance plan is right for you. For any question regarding insurance, investment, for a no-obligation insurance quote, consultation & second opinion. Please feel free to reach out!
Swinder Jodhka
416-825-3091
Broker, SSJ Financial Services
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