How Much Life Insurance Do I Really Need?
The Right Number For Debts, Expenses, and Dependents
How much life insurance does a person really need? The number may surprise you.
Few people enjoy thinking about life insurance, because of course, thinking about life insurance means thinking about death. However, most of us do not want to saddle our spouses, children, and other family members with huge end-of-life expenses like burial and estate lawyer fees. Plus, if loved ones depend on your income, things can get even more complicated. Do you carry significant debt or greater debt than assets? If so, your next of kin will be on the hook for that debt, and you probably want to leave them with a way to cover it.
When to Buy Life Insurance
The younger you are when you purchase life insurance, the lower the cost of your premiums. Therefore, it’s a good idea to start buying life insurance early on. However, even if you do know that you need life insurance, it’s difficult to know just how much you’ll need.
Personal and End-of-Life Expenses
Basic Funeral Costs
Basic funeral costs are often over $7,000. That includes embalming, viewing, hearse rental, and the actual burial.
A casket alone can cost anywhere from $1,000 to $9,000, and grave markers can tack on several more hundreds or thousands of dollars. (Cremations are more affordable, at around $3,000-4,000.) If you want a reception with food, that costs something too. The average cost of a full funeral and burial is about $15,000. So at the least, you want a life insurance policy that can cover these costs.
Next, consider your debt. This includes car loans, mortgages, school loans, credit card bills, etc. You need to take out a policy big enough to cover all of your debt, plus interest.
If you have dependents, this equation gets much more complicated. Our best advice is to calculate the number of years your dependents will continue to need your financial support when you first take out the policy. Then, multiply that number times your annual salary, then add an additional year’s salary for each decade, to account for inflation. If you are planning to fund college educations for your dependents, add in an additional $100,000 per college degree.
Furry Dependents (Pets)
What about pets? Dog ownership could cost you $20,000 per animal over the course of a pet’s lifespan. Owning a cat will cost less—around $5,000 throughout its life—but it’s still not an insignificant number. If you have horses, livestock, or large animals that your family would want to continue to care for, these pet prices skyrocket. Estimate how much these animals cost per year and multiply that number by their expected lifespan. It’s a mistake to forget to count your pets among your financial obligations.
Use Our Life Insurance Calculator
Using the information you’ve estimated about your end-of-life expenses, personal debt, and other obligations, you can calculate your estimated life insurance needs with this calculator from Southern Farm Bureau Life Insurance Company.The more accurate you can be about your expenses, the better your estimation will be.
Do you have more questions? Our agents are great at helping you work through your personal situation. Contact your local Colorado Farm Bureau Insurance agent to talk about your life insurance needs.