Carrying life insurance is critical to protecting your loved ones who depend on you to support them if they do not have the means to support themselves. Life insurance can help provide immediate cash to pay for your funeral expenses, income taxes, estate taxes, and even pay off your debts. Not everyone may need insurance, but if there is anyone that depends on your paycheck to survive, purchasing insurance should be considered.
If you decide to purchase insurance, you will need to determine how much money will be required to meet the financial needs of any survivors. One of the best ways to determine the amount of insurance you need is to complete a capital needs analysis.
First, you will need to gather all of your personal financial information and estimate what each of the individuals that you are supporting will need to meet their current and future financial obligations. Current financial obligations may be funeral expenses, unmet medical expenses, probate costs and taxes on your assets. Future financial obligations may be college expenses, the purchase of a new car, home improvements, weddings, or the cost to maintain a business.
Next, you will need to add up the amount of existing resources that are available to these individuals. Existing resources will include the income of any survivors, savings accounts, and any other investment accounts. Subtracting the total of existing resources from the total of current and future financial obligations will equal the amount of insurance that you need.
The final number from this calculation will provide you a good estimate of the amount of life insurance that you will need to provide for your family’s future. For additional assistance, it may be a good idea to contact a qualified insurance agent for guidance once you have determined you are going to purchase insurance.
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