How Much Life Insurance Will I Need? By Mike Bell At Isnare.com Ezine Articles

In many cases, when you don't have any dependents and you have enough income in order to pay for your final expenses, life insurance is not needed. If you wish for an inheritance to be built or to make a contribution to a charity, buy just enough life insurance in order to achieve your goals.

However, if you do have dependents, order just enough life insurance that, when put together with your other sources of earnings, it replaces the earnings generated for them now plus just enough to cancel out any expenses that may occur. A little extra money may sometimes be necessary after you die in order to make needed changes. Relocation and going back to school in order to be able to better support the family may be some of the changes needed.

Making plans to replace hidden income that can possibly be lost after death is a good idea. Income you receive from your employer that is not part of your wages grossed is considered hidden income, including things such as your premium for health insurance, 401(k) plans and plenty of other "perks". This tends to be overlooked very easily a lot of the time. Costs of replacing just retirement plans and health insurance alone could add up to about $2,000 a month and sometimes more. Also, plans should be arranged in order to be able to pay for expenses that are built after death such as the funeral and other estate costs and taxes. $15,000 minimum is best to cover those costs.

It's usually recommended that you buy life insurance that equals a multiple of your income. An example would be for you to buy life insurance that would be equaled to twenty times your salary before tax deductions. That is what most financial experts recommend because if you invest the benefits in bonds that pay out interest rates of five percent, thus producing an equivalent equal to the salary you earned before your death. This would enable any survivors to live off of the interest without invading the principal.

Nevertheless, this seemingly simple formula will assume that there is no inflation and that it is possible for a bond portfolio to be assembled, after the expenses, which would build five percent interest every year. Assuming that the inflation is three percent every year, gross incomes of 50,000 will have dropped to 38,300 during the tenth year. In order to avoid the income drop off, survivors would need to invade the principal every year. Upon doing so, the money would run out during the sixteenth year. The multiple of salary approach tends to ignore many other income sources such as social security, employer plans and other associations and credit cards they belong to. It isn't usually very wise to depend on death benefits that you receive through a certain job, simply because you may cease upon switching to a new job or while you happen to be unemployed. There are also many other situations that can be easily overlooked.

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