How much insurance should I get?
So how do you determine how much Life Insurance you need? To answer this question you first need to answer a few questions to determine what it is you want to provide to your family after you are gone.
- Do you have children? Yes or No?
- Will you pay for your children’s college education? Yes or No?
- Will you pay for all of college or a portion of it?
- Will your spouse work after you are gone? Yes or No?
- If your spouse will return to work, how long will it be until they return? Remember your spouse will not be the only person grieving the lost. Your children may take a while and your spouse may need to be able to leave and pick them up from school if your children are having a difficult time.
- Will your spouse go back to school before returning to work to increase their marketability?
- Will your family have medical coverage after you are gone? Many times the only medical insurance a family has is the one provided the employer for the working spouse. If you pass away and your spouse does not work, your family will need to purchase medical coverage.
- What will be the funeral expenses?
Life insurance is not typically taxed as income; however, unless certain precautions are taken when setting up the policy, it is heavily taxed as an Estate Tax (up to 50%). The Estate tax currently kicks in after $2 million dollars. In 2011 it will be rolled back to a $1, million dollar limit. So if you have a $2 million life insurance policy and you pass away after 2011, your beneficiaries will receive only ½ of the policy. The insurer will deduct the tax prior to paying the balance.
There are generally three different ways to determine how much life insurance to purchase.
The Life Value Approach is the only model we will be explaining due to the complexity of the other models. A professional financial planner can walk you through the other models if you truly want to see the differences in them.
If you're interested in free life insurance quotes, clicking here