Set For Life
Set for Life
Complete These Tasks To Help Determine Your Life Insurance Needs
For many people, life insurance is a key component of a comprehensive financial plan. Determining how much you need is a crucial step in ensuring financial security for your loved ones in the event of your passing. While there's no one-size-fits-all answer, completing these planning tasks can help you figure out the right amount of coverage for your needs.
Assess your financial obligations. Determining your life insurance needs starts with evaluating your current financial obligations. Consider your outstanding debts, such as mortgage payments, car loans, credit card balances, and student loans. Additionally, factor in future financial needs like college tuition for your children.
Calculate income replacement. Determine how much income your family would need to maintain their standard of living if you were no longer around. A good rule of thumb is to multiply your annual income by the number of years your dependents would require financial support. Individual circumstances will vary, depending on the current age(s) of your dependents. If you’re just starting a family, for example, you might want to consider 20‒25 years multiplied by your annual income.
Consider your spouse or partner’s income. If your spouse or partner contributes to your household income, consider how their income would change in your absence. For example, they may need to reduce their working hours to take care of children or other family matters during this transition period. Life insurance can help replace their lost income or provide financial assistance for childcare if needed.
Evaluate existing assets and savings. Take stock of any existing assets and savings that could be used to cover expenses in your absence. This includes savings accounts, investment portfolios, retirement accounts and any other liquid assets. Subtract these from your financial obligations to determine the additional coverage needed.
Account for inflation in future expenses. As the past few years have shown, the cost of living will increase over time due to inflation. Make sure to factor it in when you project future expenses such as college tuition, healthcare costs and other living expenses when calculating your life insurance needs.
Consider special circumstances. If you have dependents with special needs or unique circumstances, such as a disabled child or elderly parent, you may require additional coverage to ensure their ongoing care and support.
Review regularly. Life insurance needs can change over time because of factors like marriage, childbirth, career advancements or changes in financial obligations. Regularly review your coverage to ensure it aligns with your current circumstances and adjust as needed.
Informational Sources: Lifehappens.org: “5 Factors to Consider Before Choosing Life Insurance” (February 7, 2023; https://tinyurl.com/dt2a9ner); Forbes Advisor: “How Much Life Insurance Do I Need?”(July 28, 2023; https://tinyurl.com/yc4k6ukp).
This information is not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or tax advisor for guidance on your specific situation.
LPL Financial and its advisors are only offering educational services and cannot offer participants investment advice specific to their particular needs. If you are seeking investment advice specific to your needs, such advisory services must be obtained on your own separate from this educational material.
Kmotion, Inc., 12336 SE Scherrer Street, Happy Valley, OR 97086; www.kmotion.com
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