Although it's never fun to think about life insurance, it's often a safeguard that our families need. Ask yourself one thing: Do you have loved ones who depend on your income for support? If so, you should definitely consider life insurance.
So, how much is enough? The general rule of thumb for coverage is 5–10 times the amount of your annual salary. While this is a good place to start, there is no one-size-fits-all method to determine the exact amount needed. For example, a couple with two kids earning the same income as empty-nesters may need much more life insurance since they have dependents.
Here are three questions to help you know how much life insurance you need:
How much income would I need to replace?
A simple way to start is to figure out how much your family needs annually. You should then multiply your expenses by the number of years your survivors would need support in your absence. This will vary depending on many factors, including current net worth and other expected income. Individuals often find that they are underinsured when looking at the full picture.
How much debt do I have?
Debt can be a serious burden on surviving family members. Your life insurance policy should be enough to pay off any remaining debt. The most common example: using life insurance to cover the remainder of a mortgage balance.
Are there any future expenses such as college tuition to account for?
The age of your dependents is one of the biggest variables in life insurance planning. If your kids are in their late teenage years, you may only need their coverage to last a few more years. If you have younger children, you should consider policies with a much longer time frame.
The good news is that life insurance is generally very affordable. It makes sense to be well insured during certain stages of life to bring peace of mind and protection for the unexpected.
Learn more about GuideStone's life insurance product.
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