How to calculate life insurance coverage?

When planning to get insurance coverage, there are a couple of things you may wish to consider first: What is your budget and how much life insurance coverage would you require? There are certain factors that determine the rate of an insurance policy. These are:

• Applicant’s age

• Applicant’s health

• Applicant’s smoker/non-smoker status

These key factors help decide which policy will work for you and how much you will have to pay for premiums.

It is advisable to buy enough life insurance coverage to take care of all your family expenditures after your death. If your partner is a home-maker, you will have to choose a plan that accommodates for the loss of income that your family will face after your death. There might be other expenses that may arise at a later stage such as your kids’ college education, paying off outstanding bills or loans, etc.

Other than life insurance coverage, many families have some kind of arrangement for post-death income, for example social security survivors' benefits. A lot of people are insured through their employer or through other organizations. In spite of these sources, the dependents of the deceased might experience financial hardship. That's why life insurance is deemed to be the best option because it provides sufficient protection to cover most eventualities.

How much life insurance coverage should you buy?

Financial experts are of the view that life insurance should be purchased with at least five to ten times your salary in coverage. This would ensure that your family or dependents get enough coverage to meet future repayments and they don't land up in any kind of financial trouble in your absence.

Inflation rises every year. This affects the buying power of an individual. In such a scenario, other sources of income such as social security survivors' benefits prove beneficial. If an individual has $48,000 as annual income, their spouse and kids below 18 years of age would receive around $2,800 monthly as social security survivors' benefits. This is a decent amount, but it is likely that this benefit might be lowered if the partner begins to earn above a predetermined threshold.

Many people buy life insurance even if they do not have any dependents. Those people can create a legacy or give a donation to charity with the insurance benefit they receive.

When is a good time to review a life insurance policy?

Another question that occupies policyholders’ minds is how often they should review a life insurance policy. As a rule of thumb, your policy should be reconsidered at least once every twelve months. The insured should take a look at all their insurance requirements each year and get in touch with a financial consultant or an insurance agent if there's any kind of change in your life.

Here's a list of significant life changes:

• Marriage or divorce

• Major changes in you or your spouse's health condition

• Birth or adoption of a child

• Buying a new house

• Taking care of an aged person’s (i.e. parent’s) expenses

• Refinancing your home

• Receiving a legacy