Be Sure to Get the Right Amount of Insurance

Most of us need some amount of life insurance. Life insurance helps pay for final expenses when we die. It also helps support family members that depended on us while we were living. Even stay at home parents should have some sort of life insurance, as family members depend on the work that they do at home, and would be hurt economically if they had to pay for those services out of their pockets. You want to make sure that you have enough life insurance to cover your family's needs.

Replaced Income

If you work, your family will probably be a lot more comfortable if you buy enough insurance to replace your income. Generally, you will want to get between ten and twenty times your annual salary for this. Your family will want to take the proceeds and invest it in a very safe investment, so that they would earn interest, and live off what they needed. Your family may receive social security benefits after your death. If that is the case, you may need to replace less income, and can purchase a smaller policy.

Final Expenses

Whether you are a breadwinner, a work at home spouse, or even a child, you will have final expenses. Your family will have to pay for your burial, funeral, and perhaps taxes on your estate so it doesn't have to be liquidated. These expenses can top $10,000. Even cremation can cost nearly $1,000, and that is without a funeral or a memorial service. If you have savings built up to pay for this expense, you may not need to purchase insurance to pay for final expenses, but if you are like many families and have little in savings, you will want to take this into account.

Replaced Services

If you are a stay at home parent, your services would need to be replaced if you died. Do you care for children? Full time infant care at a day care could cost $220 a week or more! Nanny services cost more, but if you had multiple children, or wanted them to be shuttled to soccer practice, gymnastics, or other after school activities, that might be your best bet. You might also want to have a housekeeper come in on a regular basis to help with the chores. In order to find out how much life insurance you will need to replace lost services, treat the monthly cost as an income that you would have to replace, and get ten to twenty times that amount in life insurance.

College Expenses and Mortgages

If you are a wage earner, you might be setting aside some money every month for your children to go to college, and you might be paying a mortgage. You can include these costs in your life insurance calculations. If you pay off the mortgage completely after your death, your spouse will not have to make years of interest payments. You might also want to consider budgeting money to fund 529 plans for your children, making larger payments up front and allowing that money to grow tax free, rather than setting aside a monthly amount of money for college. If your family is already living in a paid for home and has college tuition taken care of, you will need to replace less of your income.